Letters Urgently Needed

Monday, Oct. 22, is the deadline for submitting comments on the proposed joint rule issued by the Federal Deposit Insurance Corp., the Federal Reserve Bank and the Office of the Comptroller of the Currency regarding the adoption of the Basel III Accord capital standards. While these proposed rules are designed to level the playing field for financial services internationally, unfortunately the FDIC, Fed and OCC got carried away and now seek to impose these standards on all U.S. banks. Though every other country probably will be imposing these rules on all of their banks, bear in mind that very few community banks exist outside of the United States. There are still nearly 7,000 separately chartered U.S. banks, of which 98 percent clearly are community banks. Few of these banks compete internationally for business.

Why, then, impose these restrictive international measures on community banks? I suspect that community bankers will be sending thousands of comment letters to regulators, detailing the negative impact of this proposed rule on them and their customers. I hope the regulators respond appropriately and exempt any U.S. bank that does not meet a certain threshold of international transactions.

It’s only logical to make this exemption, but many proposals that have defied logic are now the law of the land. This Basel III draft proposal may be the single most important regulatory issue the banking community has ever faced. It takes away, over time, trust-preferred securities as an option. Not even the Dodd-Frank Act took away this option for community banks! It also creates new risk-weighting standards that will require constant monitoring and vast shifts in the capital required over short periods of time.

If you have sent a comment letter, thank you. If you have not, I implore you to do so. Please stop whatever you are doing, and draft a letter right now that describes the negative effects of the proposed rule on your customers, your community and/or your bank. Nothing is more important on today’s to do list!

Note: Guidance on drafting Basel III proposal letters is available through the American Bankers Association and the Independent Community Bankers of America.

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