ABA warns Fed about increased capital standards, credit exposure limits

The American Bankers Association, along with four other trade groups, said in a letter to the Federal Reserve on Sunday that a Fed proposal to implement early remediation requirements would be more harmful than beneficial.

“[We] support a robust regulatory regime and acknowledge the need to correct for past regulatory deficiencies and gaps,” the letter said. “Some parts of the [proposal], however, do more harm than good, potentially contributing to systemic risk rather than mitigating it and having an adverse impact on banking institutions’ customers and the broader economy.”

The Fed’s proposed rule would require bank holding companies with more than $50 billion in assets, as well as non-bank firms that have been designated as systemically important financial institutions, or SIFIs, to increase capital levels. The rule would also limit counter-party credit exposure to 10 percent for those firms with more than $500 billion in assets.

“The Federal Reserve has provided no basis to determine that imposing the dramatically lower and arbitrary 10 percent credit limit on certain major covered companies would even help mitigate risks to the U.S. financial stability, much less be ‘necessary,’” the letter said.

The Independent Community Bankers of America, however, issued a letter of support to the Federal Reserve in favor of increased capital and prudential standards for the largest financial institutions.

“The market perception of too-big-to-fail not only reduces the incentives of shareholders, creditors and counter-parties of these financial institutions to discipline excessive risk-taking, it also provides these companies with a significant funding advantage over community banks,” ICBA President and CEO Camden R. Fine said, according to Michigan Banker.

Other signing parties of the ABA letter include the Securities Industry and Financial Markets Association, Financial Services Forum, the Clearing House Association and the Financial Services Roundtable.

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