Kenneth Burgess, the chairman of FirstCapital Bank of Texas, which has $713 million in assets, testified on behalf of the ABA, urging lawmakers to push forward on measures to provide relief to community banks, adding that some recent regulations may have unintended consequences that slow economic recovery.
“Just when regulators want to see banks grow, they raised capital standards and now are proposing Basel III standards that will surely force community banks to reduce lending,” Burgess said during the hearing held by the House Subcommittee on Financial Institutions and Consumer Credit. “Just when the housing market needs mortgage loans, new rules are imposing costs so high that many community banks will likely scale back their mortgage operations. These concerns may even force my bank and others like it out of mortgage lending altogether.”
Basel III rules developed in response to the financial crisis are intended to reduce risk to the global financial system through the implementation of enhanced capital standards and stress testing.
Burgess said lawmakers can do more to address potential issues in mortgage and capital regulation, as well as bank examinations and municipal advisor registration requirements.
“We need an exam process that provides consistent, timely exam reports, as well an appeals process free from the threat of retaliation,” Burgess said, expressing support for H.R. 1553, legislation that would make changes to the examination process and establish an appeals process. “In addition, Basel III should be reformed so that capital rules enhance, not inhibit the role of community banks. Current proposals would introduce significant volatility into bank capital levels and force many banks to change their core business model due to unfair risk weightings.”
Additionally, Burgess called for simplified mortgage rules that encourage banks to lend.
“New mortgage rules are creating severe legal risks, diminishing the loans we can offer so that fewer people will be able to get loans,” Burgess said. “The potential for even higher legal risks in the future will likely force many community banks to exit mortgage and retail lending altogether.”