Frank Keating, the president and CEO of the American Bankers Association, recently said that Basel III capital reforms threaten the profitability of American banks and would force the banks to avoid lending.
“Basel III, like Dodd-Frank, began with good intentions,” Keating said, Investors.com reports. “But in its attempt to apply lessons learned from the 2008 global financial crisis, it overdoses on complex formulas that threaten to kill the patient. U.S. regulators must recognize this threat and withdraw their proposed one-size-fits-all rules before they punish the recovering housing markets and undermine the U.S. economy.”
Keating said that a “single, strong” set of capital standards like Basel agreements will function effectively only if nations adopting the standards “are served equally well by them,” adding that regulators should devise clearer rules requiring banks of varying sizes, business models and complexity to carry adequate capital.
Under the Basel III rules, many American banks will have to raise about $60 billion in capital to meet the new standards. Keating said that while banks will be forced into “daily complex calculations” to prove that they meet the standards, the most harmful part of the Basel plan “[steers] them away from loans to credit worthy borrowers that carry higher capital requirements, including many mortgages and bread-and-butter loans to businesses,” according to Investors.com.
Additionally, Keating pointed to a letter signed by 53 senators, both Democrat and Republican, requesting that banking regulators consider the impact of Basel III on America’s community banks.
“The hours invested [on the Basel III proposal] are sunk costs, and they cannot compare to the price Basel III will extract on the U.S. economy,” Keating said, Investors.com reports. “It’s far better to withdraw and rework these rules now than to make a commitment we will regret for years.”