Changes to Capital Rules

Last Friday the Indiana Bankers Association hosted a seminar that covered issues related to the JOBS Act, Basel III, and capital planning and accessing. The material was presented by Krieg DeVault LLP partners John Tanselle, Mike Messaglia and Karen Woods—along with Jim Cooper, deputy director of the Indiana Department of Financial Institutions; Jill Hoyle, assistant deputy comptroller with the Office of the Comptroller of the Currency; and Chris Naylor, Indiana’s securities commissioner. A total of 25 bankers from 17 Indiana-based banks attended.

The main message was loud and clear: All of the capital rules for bankers are changing. Beginning Jan. 1, 2013, through Jan. 1, 2019, various aspects related to capital will be changed forever, with a chilling after-effect on borrowers. As capital requirements will increase for most banks, the lower leveraging consequently will permit fewer dollars to be loaned to borrowers.

These changes will be coming at the same time that a slew of new regulations will result from the Dodd-Frank Act. Rule changes will range from the unexpected phasing out of all trust-preferred securities to implementation of a new capital-raising tool called “crowdfunding.” Additionally risk-weighted capital requirements will become reality.

Banks with assets of less than $500 million, at least in theory, will be minimally affected. However if growth is part of the strategy for these smaller banks to survive the onslaught of regulations, it is imperative that they fully understand the new rules.

In fact all banks face a steep learning curve regarding the new capital rules. IBA will be studying these new rules carefully and will be offering many more educational seminars in the months and years to come. IBA also will be determining whether there are nuances of these new rules that create opportunities for banks to partner with each other and/or with IBA. If so, I assure you that we will be there to assist in any way we can.

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