April 16, 2013 / 8:02 PM / 5 years ago

U.S. senator asks regulators to weigh bank capital costs

WASHINGTON, April 16 (Reuters) - Republican Senator Richard Shelby introduced legislation on Tuesday that would force regulators to study the economic impact before finalizing new rules requiring lenders to hold more equity.

It is unclear how much bipartisan support Shelby will be able to muster for the legislation, which could slow the adoption of Basel III bank capital rules.

Shelby, a member of the influential Senate Banking Committee, has argued that tighter capital rules could prove damaging to the still tenuous economic recovery.

“Congress needs a detailed analysis of current and new capital rules to ensure that taxpayers are protected without unduly impeding bank lending or economic growth,” Shelby said in a statement on Tuesday.

A group of bank regulators - the Federal Reserve, the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation - have each proposed rules to implement the global Basel III capital accord in America.

Basel III forces banks to raise more shareholder capital to fund their business, but it is under attack both from people who think it is not enough to make the banks safe, as well as from those who think it is too onerous.

Shelby said the proposed rules did not explain that Basel III was calibrated appropriately for U.S. institutions and also failed to explain what the impact on the U.S. banking system and the overall economy was.

Some regulators have also been urging a rethink, with the FDIC’s Thomas Hoenig saying the rules should be ditched in favor of a simpler approach, while Bank of England director Andrew Haldane has said the rules are too complex.

Others, such as Benjamin Lawsky, head of the New York State Department of Financial Services, want to spare community banks from the most complex parts of the new rules.

Senators David Vitter, a Louisiana Republican, and Sherrod Brown, an Ohio Democrat, are working on legislation that would toss out Basel III and force the largest banks to hold up to five times more capital.

Europe reached a deal on Basel III only last month and the rules will not come into effect until January 2014, a year late. Federal Reserve governor Daniel Tarullo has said the U.S. rules will be fine-tuned rules later this year. (Reporting by Douwe Miedema. Editing by Andre Grenon)

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