Reps. Capito, Maloney: Tailor Basel III rules to preserve U.S. financial resilience

Shelley Moore Capito

Shelley Moore Capito

In a Tuesday letter to the FDIC, Federal Reserve and OCC, Rep. Shelley Moore Capito (R-W. Va.) and Rep. Carolyn Maloney (D-N.Y.) expressed concern regarding the impact of Basel III rules on small financial institutions.

Capito and Maloney noted testimony from a November hearing on Basel III in which House subcommittee members voiced concern about the application of proposed Basel III rules to all financial institutions “regardless of their asset size or business models.”

“As many of the witnesses reinforced during the hearing, the Basel III capital requirements were designed for large banks that conduct business globally,” the lawmakers said. “We believe the application of these standards to regional and community banks could have a significant negative economic effect.”

The legislators pointed to the large number of small institutions in the U.S., saying that they did not play a role in the recent financial crisis but have instead continued to play an important role in their communities.

“We are concerned that the compliance costs of implementing the Basel III framework will force many institutions that are not engaged in global banking to consolidate or go out of business altogether,” Capito and Maloney said. “We are also concerned that the cost will ultimately be borne by consumers in the form of higher down payments and higher interest rates on residential mortgages.”

Additionally, Capito and Maloney said that the Basel III approach for risk-weighted assets “could severely limit the types of mortgages smaller banking institutions can feasibly offer in their communities and hold in portfolio.”

“Traditional community banking mortgage products that help lower-income consumers finance their homes will become scarcer and more expensive, as the regulatory capital needed to originate and hold these loans will increase substantially,” the legislators said. “This impact will be especially pronounced in underserved areas, in both rural towns and metropolitan neighborhoods across the nation, where smaller institutions are often the primary source of credit.”

The lawmakers said that a wide diversity of available lenders in the U.S. has allowed consumers and businesses to choose from multiple credit sources, which strengthens the U.S. economy.

“To maintain this valuable benefit, we urge you to tailor the new capital rules in a way that is appropriate for the wide range of financial institutions that comprise our financial system and that reflects and preserves its diversity,” Capito and Maloney said.

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