U.S. Banking Regulators Delay Basel III Capital Rules
On November 9, 2012, the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, and the Office of the Comptroller of the Currency (collectively, the “U.S. Banking Regulators”) issued a press release stating that they “do not expect” that any of the new regulatory capital rules they had proposed to implement pursuant to Basel III would become effective on January 1, 2013. While this statement from the U.S. Banking Regulators effectively delays the implementation of the Basel III capital rules for U.S. banks, the U.S. Banking Regulators also stated that they “take seriously [their] internationally agreed timing commitments regarding the implementation of Basel III and are working expeditiously as possible to complete the rulemaking process.”
Earlier today, George French, Deputy Director of Policy in the Division of Risk Management Supervision of the Federal Deposit Insurance Corporation stated before the Committee on Banking, Housing, and Urban Affairs that “the FDIC is carefully reviewing the comments … received regarding the [the proposed rules]. These are proposed rules and [FDIC expects] to make changes based on the comments. The basic purpose of the Basel III framework is to strengthen the long-term quality and quantity of the capital base of the U.S. banking system. In light of the recent financial crisis, that would appear to be an appropriate and important goal. However, that goal should be achieved in a way that is responsive to the concerns expressed by community banks about the potential for unintended consequences.”
The delay, which is partially attributable to the concerted effort by trade associations and community banks in providing written comments on the proposed rules, is a victory for thousands of community banks throughout the United States that would have been hit hard by implementation of the new regulatory capital rules on January 1, 2013. Additionally, the action of the U.S. Banking Regulators shows that they may be forming a more sympathetic view of community banks after reviewing these comments expressing concern regarding the significant burdens these proposed rules would place on community banks.
Since the passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”), there has been much discussion about the future of community banks as part of the U.S. banking system. Many observers believe that the passage of the Dodd-Frank Act and the creation of the Consumer Financial Protection Bureau have had a significant negative impact on community banks, particularly when coupled with downward pressures on community bank income from the low interest rate environment, continued substandard economic conditions and the cost and burden of government regulation. The delay of the implementation of the Basel III capital rules is a positive development for community banks as they navigate these difficult economic times. Although it is not clear how the Basel III standards, when ultimately implemented, will differ from the proposed standards, we recommend that community banks update their capital plans and strategies in consideration of higher capital levels (particularly Tier 1 capital) required by Basel III that are expected to eventually apply to community banks.
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