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Financial trade groups criticize Basel III capital rules

The American Bankers Association, the Financial Services Roundtable and the Securities Industry and Financial Markets Association submitted a letter to regulators this week expressing concern regarding Basel III capital standards.

“It is of paramount importance that such fundamental revisions to the U.S. bank capital framework accommodate the twin goals of better aligning regulatory capital requirements with actual risks and fostering a financial regulatory environment that is conducive to the level of credit availability that can support a strong economic recovery and long-term economic growth,” the groups said in the letter to the Federal Reserve, the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corp. “Many aspects of the proposals do not meet these goals and, if adopted, would likely hinder credit availability, dampen economic growth and harm the competitiveness of the U.S. banking system and the U.S. financial sector.”

The groups further expressed concern about the agencies’ “lack of risk calibration,” “timing of their [proposals’] implementation,” the proposals’ “significant divergence from and additions to internationally agreed-upon capital standards” and the proposals’ “expected adverse impact on the availability of credit in a recovering U.S. economy and on the competitiveness of the U.S. banking system at home and abroad.”

Regulators proposed the implementation of international bank capital standards drafted by the Basel Committee on Banking Supervision. Comments on implementation of Basel III capital reforms were originally due by September, though regulators decided to extend the comment period until Monday.

Requiring banks to hold increased levels of capital is expected to cushion losses in the event of a financial crises and prevent the failure of financial institutions, thereby causing public panic.

“Rather than being a buffer to economic turbulence, this plan would cause capital to amplify economic volatility, making it more difficult for banks to serve customers in hard times and more expensive in even the best economic conditions,” the groups said. “Basel III would punish institutions that make mortgage and small business lending a significant part of their operations. Putting a scarlet letter on these assets will only cause a retraction in financial activity when families, businesses and our economy can least afford it.”

The groups also advised against the implementation of a “one-size-fits-all” proposal that could harm smaller, community banks.

“We need simpler rules that focus on good, quality capital at adequate levels rather than a…structure that is too complex and a bad fit for U.S. banks of all sizes,” the groups said. “In reevaluating the plan, the views of state bank regulators should be given equal weight to those of federal banking regulators. Congress should play a much larger consultative role in any proposal that would so profoundly alter the basic structure of America’s banking industry and its role in funding economic growth.”

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