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Regulators back off Basel III

By Marcie Geffner ·
Wednesday, November 14, 2012
Posted: 5 pm ET

The U.S. Senate Committee on Banking, Housing and Urban Affairs this week heard testimony from three federal banking regulators as to the likely impact of the proposed new bank capital rules known as Basel III.

In sum, the regulators seemed committed to the rule-making process, yet mindful that the process isn't finished.

In prepared testimony, Michael S. Gibson, director of the banking supervision and regulation division at the Federal Reserve, told the committee that the stronger capital standards would significantly lower the chances of future banking crises among internationally active banks, yet they would have only a modest negative effect on U.S. economic production and interest rates. He added that those negative effects could be mitigated by phasing in the standards over time.

"The Federal Reserve believes that the benefits of the proposed changes, in terms of reduction of risk to the U.S. financial system and to the broader economy, outweigh the compliance costs to the financial industry and any costs to the macro-economy," Gibson said.

John Lyons, chief national bank examiner at the federal Office of the Comptroller of the Currency, or OCC, also in prepared testimony, told the committee that the OCC is still reviewing the more than 1,500 comment letters that the agencies received from banks and federal savings associations, many of which "raised concerned about the applicability of the standards to them."

George French, deputy director of policy within the risk management supervision division of the Federal Deposit Insurance Corp., or FDIC, said, "Strengthening bank capital requirements seems to be an appropriate and important step" in light of the 463 FDIC-insured banks that have failed since 2008.

But he added  that the agency is open to changes in the proposed rules and that the goal of stronger capital standards "should be achieved in a way that is responsive to the concerns expressed by community banks about the potential for unintended consequences."

The new capital rules originally came with a proposed effective date of Jan. 1, 2013, but the agencies recently issued a joint notice that they no longer expect to meet that timeline.

"The U.S. agencies take seriously our internationally agreed timing commitments regarding the implementation of Basel III and are working as expeditiously as possible to complete the rule-making process," the notice stated.

Do you support greater regulation on the banking industry? Do you think banks will pass along the cost of regulation to their account holders?

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