WASHINGTON Nov 14 U.S. bank regulators sought
to reassure lawmakers on Wednesday that they will incorporate
community banks' concerns as regulators finish up new rules
requiring financial firms to hold more capital.
Officials from the Federal Reserve, Federal Deposit
Insurance Corp and Office of the Comptroller of the Currency
told a U.S. Senate Banking Committee hearing that they are
considering industry comments on rules proposed to implement an
international capital agreement.
They said they could tweak the rules to make it easier for
small banks to comply.
The Basel III capital agreement is considered one of the
most critical reform efforts to make sure the global banking
system is more resilient in the aftermath of the 2007-2009
But some critics say U.S. regulators' plans to implement the
rules would unfairly hurt community banks.
"The Federal Reserve believes capital requirements that
improve the quantity and quality of regulatory capital would
benefit the resiliency of all banking organizations regardless
of size," said Michael Gibson, head of the Fed's banking
"However, as we consider comments from industry participants
and other interested parties regarding the proposed regulatory
capital requirements, the Federal Reserve, along with the other
banking agencies, will remain sensitive to concerns expressed by
community banking organizations," he said.
Under the proposed rules, banks would have to hold about
three times more basic capital to protect against potential
losses. The biggest banks would hold even more.
The amount of reserve capital that banks must hold would be
determined, in part, by the riskiness of their assets.
Banks have agreed that they need to hold more capital to
guard against losses, but have criticized the particulars of the
Large banks say the rules go too far in forcing them to hold
extra capital. Smaller banks have argued that extra compliance
costs could hamper lending and stifle the U.S. economic
recovery. Both have said the formulas to determine how much
capital to hold for riskier assets are too complicated.
Some regulators have proposed exempting smaller banks from
that formula-based portion of the rules, while others have
suggested throwing out the rules entirely.
Sheila Bair, a former head of the FDIC who remains an
outspoken reform advocate, said in a statement on Wednesday that
regulators should implement Basel III for the biggest banks
U.S. Senator Michael Bennet, a Colorado Democrat, said
during the hearing that small banks in his state are frustrated
that they will face higher costs even though they were largely
not responsible for the systemic problems during the financial
"They really worry that they're going to be driven out of
business and that this is going to lead to consolidation,"
Bennet said. "If the market is driving consolidation, that's one
thing. But if it's because of the regulatory burden that's
solving a problem that doesn't actually exist in the community
banks, that may not be the greatest answer."
Some lawmakers also said the models to figure out how much
capital to hold for certain assets may be too complex and
questioned whether some sovereign debt should be viewed as
riskier than under the Basel rules as proposed.
After receiving more than 1,500 comment letters on the
proposed rules, the three bank regulatory agencies said last
week that banks would not have to comply with the new rules in
January, as previously expected.
The officials at the hearing on Wednesday said they expect
the requirements to change before a final rule is released.
"We have not reached decisions on any of these matters,"
said George French, deputy director for policy in the FDIC's
risk-management division. "We anticipate making changes in
response to comments."
The officials could not say when the final capital rules
would be complete.