Lawmakers across three states express concern regarding impact of Basel III rules

Steny Hoyer

Lawmakers from Maryland, Louisiana and Wisconsin have joined a growing number of legislators who have expressed concern to banking regulators regarding the potentially harmful impact of Basel III agreements on community banks.

Maryland legislators, led by Steny Hoyer (D), the minority whip in the House of Representatives, said that the state’s banks increased capital levels after the financial crisis.

“[W]e have heard concerns from many community banks in Maryland that the complex capital rules…proposed in June 2012 will unnecessarily hamper bank lending and have a negative impact on Maryland’s economy,” the letter to the Board of Governors of the Federal Reserve, the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corp. said. “Specifically, community banks inform us that the proposed Basel III and Standardized Approach standards will require them to increase their capital and liquidity holdings dramatically on mortgage and small business loans, which will result in fewer and more costly home and business loans for Marylanders.”

The Maryland letter was signed by Sens. Benjamin Cardin (D) and Barbara Mikulski (D), as well as Reps. Roscoe Bartlett (R), Elijah Cummings (D), Donna F. Edwards (D), Andy Harris (R), C.A. Dutch Ruppersberger (D), John Sarbanes (D) and Chris Van Hollen (D).

Louisiana lawmakers expressed similar concern regarding the impact of Basel III rules on community banks.

“We urge you to reject Basel’s overly complex risk weighting capital system,” the letter said. “New capital rules should appropriately distinguish between the size, risk and complexity of the financial institution in order to develop a more level playing field…First, we worry that the complexity of the proposed rule will disproportionately affect the ability of our community-based institutions to comply and effectively serve their customers. Second, we are concerned that it will work to spur further consolidation in the banking industry as smaller community banks and thrifts struggle to comply.”

The legislators also expressed concern about the Basel III risk-weight system.

“Risk-weighting under Basel III will shape the types of loans banks make and could allow banks to obscure their capital situations and create a false sense of confidence by assigning very low risk weights to instruments that actually have a good deal of risk,” the lawmakers said. “We are concerned that these risk weightings will influence capital decisions in ways that could lead to asset bubbles.”

The Louisiana letter was signed by Sens. Mary Landrieu (D) and David Vitter (R), in addition to Reps. Rodney Alexander (R), Dr. Charles Boustany (R), Bill Cassidy (R), Dr. John Fleming (R), Jeff Landry (R), Cedric Richmond (D) and Steve Scalise (R).

Wisconsin delegates urged regulators to consider the impact of Basel III rules designed for “large, sophisticated” banks on community banks.

“We continue to worry that the proposed rule-makings overlay an unnecessary burden on community banks that may restrict community lending by small banks, discourage banks from purchasing and holding long-term assets like Treasury notes and municipal bonds and promoted consolidation of community banks without a corresponding benefit in the overall soundness of the banking system,” the legislators said. “We believe that a ‘dual’ approach that recognizes the disparate risks and business models of small community banks and large banks ultimately best serves Wisconsin by permitting a robust community banking system to flourish while still mitigating the risks to the financial system posed by insured institutions.”

The Wisconsin letter was signed by Reps. Sean Duffy (R), Ron Kind (D), Gwen Moore (D), Tom Petri (R), Reid Ribble (R) and F. James Sensenbrenner (R).

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