Wayne Abernathy, the executive vice president of financial institutions, policy and regulatory affairs at the American Bankers Association, recently said that Basel III international capital requirements requiring banks to increase capital will be a detriment to the U.S. economy.
Basel III rules were designed by international regulators to prevent a repeat of the recent financial crisis. The new standards force banks to rely more on equity and less on debt to better buffer against significant losses in times of economic distress, Bloomberg reports.
Federal Reserve experts estimate that U.S. banks will be required to raise capital levels by $60 billion, a move that Abernathy says will be a “body blow” to the American economy.
“That is a lot of money, particularly when you understand that it is to be used to do nothing…” Abernathy said, according to Bloomberg. “[B]anks would set aside another $60 billion just to provide the same amount of financial services as they do now. Effectively, those $60 billion would be gathered from the economy and shelved.”
Abernathy said that without Basel standards, American banks could receive $60 billion from investors to support $600 billion in new loans and financial services.
“The Basel regime sequesters the new capital, and the American economy forgoes the $600 billion in new activity,” Abernathy said, Bloomberg reports. “If there ever was a good time to give up $600 billion in new loans in the economy, this is not that time.”
Additionally, Abernathy said that adequate capital levels have not been an issue for American banks, which today hold $1.6 trillion in capital.
“Maybe the Basel standards are needed to get foreign banks to increase their capital levels,” Abernathy said, according to Bloomberg. “Conceding that point in light of lower capital levels carried by many foreign banks, that desideratum could surely be achieved with far less complexity and without imposing serious harm on the American economy. The American economy is soft now, and the Basel hit has only begun.”