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Community banks bad-mouth Basel III

By Marcie Geffner · Bankrate.com
Friday, October 12, 2012
Posted: 6 am ET

Community banks are stepping up their effort to be exempted from new higher capital requirements, saying the rules should apply only to larger and more complex financial institutions, a.k.a. big banks.

The Independent Community Bankers of America, or ICBA, a Washington, D.C.-based trade group that represents community banks, said in a statement that the "one-size-fits-all approach" of the pending rules, known as Basel III, is "not appropriate for community banks."

ICBA CEO Camden Fine said in the statement that the new capital requirements are too complex and will put too heavy a burden on community banks. The organization also says imposing these standards would threaten the U.S. economic recovery.

Basel III was conceived as an international standard that would apply to the world's largest banks, but the proposed rule issued by U.S. regulators would impose the same standards on banks of all sizes, ICBA said.

Separately, 53 U.S. senators on both sides of the political aisle sent a letter to federal regulators, urging them to consider how the new capital standards will affect community banks. The senators said they supported efforts to raise capital standards for banks as long as the differences between community banks and larger financial institutions were taken into account.

"We do not see the value in requiring (community banks) to adhere to regimes designed to manage larger and more complex risks," the letter said.

The letter also pointed out that community banks have limited access to capital markets and  rely on their own officers, directors and shareholders to raise additional capital. This process is "challenging" in the best of times and "nearly impossible in times of economic stress," the senators wrote.

"We understand that capital is an important source of strength in our financial system. However, the complexity of new global rules adds little value to the community institutions, which your agencies rigorously regulate and monitor," the letter continued. "As you review these proposed rules, we respectfully request you consider these unintended consequences and their effect on the viability of community banks across the country."

Do you think community banks should be held to lesser standard? Do big banks have an advantage over community banks?

Follow me on Twitter: @marciegeff.

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