Regulators and Basel III

The past couple of days, more than 60 bankers and spouses participated in the IBA Annual Washington Lobbying Trip. We called on all members of the Indiana Congressional delegation and Sen. Dan Coats’ office. Unfortunately Congress adjourned on Sept. 21, until after the general election on Nov. 6, so we visited with the legislative assistants who work on banking issues in each office.

We also called on the regulatory offices, including the Office of the Comptroller of the Currency (OCC), the Federal Reserve Bank (FRB), the Federal Deposit Insurance Corp. (FDIC) and the Consumer Financial Protection Bureau (CFPB). This year, these regulator calls were much more important than the Congressional calls. It was imperative that the Indiana Bankers Association delegation weigh in on the proposed Basel III international bank capital rules — those overreaching rules designed to create a level playing field for internationally active banks.

The problem with Basel III is that the OCC, FDIC and FRB have issued a joint draft that would make these new international capital rules apply to all banks in the United States. As the draft is written, even small community banks that are not active in international financial transactions would be subject to these measures.

It was encouraging to witness so many community bankers explain what the proposed rules would do to their banks and communities if promulgated. In an environment where regulators and congressmen are regularly questioning the wisdom of fewer and larger financial institutions, why would regulators want to impose capital standards that might cause more community banks to put up the “for sale” sign?

During our DC trip, we had the benefit of briefings by the Independent Community Bankers of America, the American Bankers Association and the Conference of State Bank Supervisors. We appreciate that they shared invaluable insights into both the legislative and regulatory landscapes.

Also last week, IBA began its campaign of providing information to bankers so that they can send comment letters to the regulators on these draconian capital adequacy proposals. The ball is now in the hands of our members to respond. Based on this year’s record turnout in Washington DC, I am confident they will not disappoint!

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