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Banks step up Basel III fight

By Marcie Geffner · Bankrate.com
Wednesday, November 7, 2012
Posted: 7 am ET

U.S. banks, through their industry associations, are stepping up their protest against full implementation of new capital requirements that would narrow the definitions of what counts as capital, change capital risk-weight calculations and establish new required capital levels.

The American Bankers Association, or ABA, a Washington, D.C.-based banking industry group, has sent a nine-page comment letter to federal banking regulators, arguing that so-called mutual institutions, also known as regional or community banks, should be exempt from the rules, known as Basel III.

The letter says these smaller banks have few options to raise capital and warns that the Basel III requirements could force them to freeze or reduce their lending activities, harming the U.S. economic recovery without making the banks safer or sounder. The letter goes on to recommend a number of broad and specific technical changes to the rules.

Meanwhile, the Independent Community Bankers of America, or ICBA, also a Washington, D.C.-based trade group, has launched a petition asking banking regulators to exempt community banks from the regulations.

The petition says that Basel III was conceived as an international standard that would apply only to the largest internationally active banks, but that the proposed rule issued by federal regulators would impose the same regulations on all banks. The document also says community banks maintain high capital levels and didn't participate in the reckless behavior that contributed to the recent financial crisis.

Rather than adopt the new rules, community banks would prefer to stick with Basel I capital requirements, which the ICBA says more accurately aligns the banks' regulatory capital with the types of assets they hold.

In a statement, ICBA CEO Camden Fine said imposing the higher standards would hurt local communities.

"Applying overly complex capital rules on community banks will fuel concentration in the banking industry, leaving small businesses and consumers with fewer banking options," Fine said.

As of late October, nearly 15,000 community banks and affiliated companies had signed the petition, according to the ICBA.

Follow me on Twitter: @marciegeff.

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