* Lawmakers, state regulators say Basel could hurt small
* U.S. bank regulators say expect changes based on comments
By Emily Stephenson
Nov 29 U.S. lawmakers and state financial
regulators on Thursday called on federal officials to revamp
proposed rules that would force financial firms to hold much
more capital, asking them to consider the impact on small banks
and insurance companies.
U.S. bank regulators are writing rules to implement an
international accord known as Basel III. The agreement is seen
as one of the key reform efforts after the 2007-2009 financial
crisis to make the global banking system more resilient.
Under the rules proposed by the Federal Reserve, the Federal
Deposit Insurance Corp (FDIC) and the Office of the Comptroller
of the Currency (OCC), the biggest banks would have to hold the
But the rules could pose challenges for community banks and
other firms who must meet stricter capital requirements, U.S.
lawmakers and state bank and insurance regulators said during a
House of Representatives committee hearing.
"The one-size-fits-all approach to regulatory capital in the
proposed rules does not take into consideration the diversity of
our nation's financial system and the unique challenges faced by
different-sized institutions," said Representative Shelley Moore
Capito, a Republican who leads the House subcommittee focused on
"There needs to be significant flexibility in the way these
rules are finalized that properly takes into account the
differences in their business models," she said.
Officials from the Fed, the FDIC and the OCC said they are
taking industry criticism seriously and repeated assurances made
at a Senate hearing earlier this month that they expect to make
changes based on comment letters submitted by the industry.
Under the proposed rules, banks would have to hold about
three times more basic capital to guard against potential
losses. The amount of reserve capital banks would need to hold
would be determined in part by the riskiness of their assets.
Most in the industry agree that firms need to hold more in
reserve after many banks needed capital injections to survive
the financial crisis. But many in the industry and in Congress
have criticized the particulars of the U.S. rules.
Greg Gonzales, commissioner of the Tennessee Department of
Financial Institutions, said the proposed rules are too complex
and could hamper small banks' lending to communities that are
still struggling with the weak U.S. economic recovery.
"We need to encourage a supervisory process that prudently
supports economic recovery, not policies that would further
suppress the flow of credit or drive business from the regulated
deposit system," said Gonzales, who also serves as chairman of
the Conference of State Bank Supervisors.
"We need to clearly understand how these proposals will
change the type of credit available, the manner in which banks
lend, and the full impact on economic recovery and job growth,"
U.S. regulators have said they believe many banks already
hold enough capital to meet the requirements but that they are
sensitive to community banks' concerns about the rules.
Kevin McCarty, commissioner of Florida's Office of Insurance
Regulation and president of the National Association of
Insurance Commissioners, said insurance companies that also
offer banking services could struggle to comply with rules that
were developed with banks in mind.
He said the rules could conflict with existing state
regulations for insurance companies.
Earlier this month, the federal banking agencies said banks
would not have to comply with the Basel rules in January, as
European Union sources have told Reuters that Europe is
preparing to follow the United States in postponing the
introduction of the Basel III reforms.
Michael Gibson, director of the Fed's division of banking
supervision, said he could not yet say when the final U.S. rules
would be released.