Kansas lawmakers express concern over impact of Basel III on community banks

Jerry Moran

Several members of Kansas’ congressional delegation said in a recent letter to banking regulators that Basel III rules designed to increase capital levels for America’s largest banks could reduce lending by smaller community banks.

The members – Republican Sens. Jerry Moran and Pat Roberts, and Republican Congressmen Tim Huelskamp, Kevin Yoder, Lynn Jenkins and Mike Pompeo – said that certain loans, like balloon mortgage loans, made in Kansas communities will be adversely impacted by the Basel III proposal. The group also said that, as banks prepare to deal with increased compliance costs, some smaller institutions have indicated that they may leave the mortgage lending market.

“Our economy is made stronger when we have a robust housing market,” the lawmakers said in the letter to the Federal Reserve, Federal Reserve Insurance Corp. and the Office of the Comptroller of the Currency. “The absence of mortgage lending by smaller lenders will devastate progress made in the housing sector.”

Additionally, the members expressed concern regarding the complexity of the proposed regulations on smaller lenders.

“With growing compliance costs, the movement toward international capital standards and risk weighting will be financially unbearable for small banks, regardless of their capital levels,” the letter said. “Redefining capital will force a formerly well-capitalized bank to seek additional capital. Small financial institutions have very few capital raising options compared to their larger financial counterparts. These requirements will force shareholders, officers and directors to make up the capital difference.”

The lawmakers also expressed concern about the proposal’s impact on credit availability for Kansas communities.

“We fear these regulations and their complexity will ultimately impose a standard that will force banks to consolidate to make it more difficult for families and businesses in Kansas to obtain credit,” the letter said. “We are eager to maintain and appropriately improve the safety and soundness of the nation’s banking system. We are concerned, however, that the current proposal will unnecessarily harm our state’s small lenders with undue burdens originally intended for international financial players.”

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