The Independent Community Bankers of America (ICBA) urged federal regulators on Wednesday to re-think rules that it said would force community banks out of the mortgage servicing business and limit consumer options.
The group’s concerns stem from the implementation of Basel III regulatory capital standards designed to ensure firms have adequate capital in the event of a financial shock.
The Basel rules reduce the amount of mortgage servicing assets permitted in servicing portfolios from the current 100 percent ceiling of tier 1 capital to 10 percent of common equity tier 1 capital, “resulting in a much narrower measurement of regulatory capital,” the ICBA said in a letter to the Financial Stability Oversight Council (FSOC).
“[C]ommunity banks across the United States are acting as key economic drivers in rural and underserved communities that are untouched by the larger regional and money center banks,” the ICBA said. “The implementation of harsh, radical and damaging penalties on the MSAs of community banks serves to greatly diminish the value of community banks as they are forced to severely limit the number of mortgages they serve.”
The ICBA told the FSOC that it supports an exemption for institutions with consolidated assets of less than $50 billion, which would be subject to current regulatory capital rules and thresholds.
Earlier this month, the American Bankers Association (ABA) also voiced concerns in a similar letter to FSOC, saying the increased capital requirements are driving mortgage servicing rights to less regulated companies.
“The Basel III treatment of MSRs was advocated in large part by foreign regulators whose banks hold few, if any, of these assets,” the ABA said in a May 12 letter. “As a result, the effects on their banks will be minimal, while many U.S. banks are being forced to divest MSRs because of significant changes in capital costs.”
The ABA recommended that the MSR deduction threshold be raised from 10 percent to 25 percent of common equity tier 1 capital and that MSRs be eliminated from a 15 percent aggregate deduction, which it said would “help to preserve the viability of mortgage lending and servicing at numerous banks that are essential to the well-being of the communities they serve.”