Terry Branstad, the governor of Iowa, and James Schipper, Iowa’s banking superintendent, urged banking regulators in a letter last week to consider the impact of Basel III capital reforms on community banks.
“Community banks are a critical source of business lending in Iowa,” Branstad and Schipper said in the letter to the Federal Reserve Board of Governors, the Federal Deposit Insurance Corp. and the Office of the Comptroller of the Currency. “In many parts of our state, the local banks are the only source providing local capital and services as they have a direct stake in the success of their communities. These institutions have a completely different business model—funding loans in the community with local deposits—than the multi-national institutions that were the focus of the Basel Committee.”
Following the 2008 financial collapse, the Basel Committee on Banking Supervision proposed capital and stress-testing standards that would be used to limit risk in the global financial system.
Branstad and Schipper expressed concern regarding the impact of the rules as they are currently written, saying that the proposal would limit access to capital and impose a costly compliance burden.
“Many Iowa banks will have difficulty servicing their local communities because they simply do not have the resources or capacity to meet the new compliance obligations,” Branstad and Schipper said. “Capital is a critical source of strength in our financial system. However, application of these global rules does little to strengthen Iowa banks and instead will likely weaken their ability to foster capital to those small business owners and investors who need it most to help grow the economy.”