Capital ICBA Basel Push Makes News Calls by ICBA and the community banking industry for regulators to exempt community banks from proposed Basel III regulatory capital standards are making headlines this week. American Banker reported that hundreds of community bankers submitted comment letters on the proposed capital standards. The newspaper noted ICBA’s call for regulators not apply to U.S. financial institutions with consolidated assets of $50 billion or less and that are not deemed to be systemically important financial institutions.
Additionally, Bloomberg reported ICBA’s argument that the Basel III standards were designed for the largest, internationally active financial institutions and were never intended to apply to domestic community banks. A Bankrate report on Yahoo! Finance noted industry concerns that the Basel guidelines will drive industry consolidation.
ICBA wrote in its comment letter that applying Basel III proposals to community banks would significantly erode their profitability and credit availability and drive community banks out of business. ICBA noted that introducing the capital conservation buffer, new definitions for common equity Tier 1 regulatory capital, new risk weightings for assets such as residential mortgages and the timeline for adopting the new minimum capital levels present many expensive and unnecessary regulatory burdens for community banks.
“Let us remember that community banks were not the cause of the financial crisis of 2008,” ICBA wrote. Read ICBA Comment Letter.
Capital Curry: Regulators Will Consider Community Bank Basel Concerns Regulators will take a close look at community bank concerns with proposed Basel III regulatory capital guidelines, Comptroller of the Currency Thomas Curry said. Speaking before the Florida Bankers Association, Curry noted that calls to exempt community banks and thrifts from the proposals raise valid questions, though he did not commit to an exemption. ICBA this week called on regulators to exempt community banks and thrifts from the higher capital standards.
“Some have suggested that we should simply exempt smaller institutions from these rules entirely,” Curry said. “After all, community banks and thrifts didn’t cause the crisis, so why should they be forced to make such significant changes to their capital structure in the wake of the crisis? That’s a reasonable question. But we need to keep in mind that over 400 community banks and thrifts have failed since 2008, and ultimately, they failed because they didn’t have enough capital for the risks they took.”
Curry noted concerns with the proposed treatment of accumulated other comprehensive income. He said community bankers have raised concerns that including AOCI in the calculation of regulatory capital would result in increased volatility, as ICBA did this week. “Based on comments we have received on AOCI, I can promise you that we will be taking a very serious look at what our options are to address this conundrum,” he said.
Curry also noted that provisions pertaining to mortgages could impose a serious burden on community banks and thrifts, particularly when applied to existing mortgages. He said regulators must strike the right balance, because mortgages were a major source of trouble in the financial crisis.
Curry said that regulators do not want to incentivize risk-taking, but they also should not ask community banks to analyze and track every conceivable risk. The costs of regulatory burden should not outweigh the benefits of finer calibrations of risk and capital, Curry said. “We’re hoping that the comment letters that many of you provided will help us achieve the right balance,” he said.
Fraud FinCEN Warns of Payment Processor Risks The Financial Crimes Enforcement Network issued an advisory on filing Suspicious Activity Reports for activities related to third-party payment processors. FinCEN said that recent increases in certain criminal activity have demonstrated that payment processors present a risk to the payment system by making it vulnerable to money laundering, identity theft, fraud schemes and illicit transactions.
The risk profile of these entities can vary significantly depending on the composition of their customer base, FinCEN said. For example, payment processors that provide consumer transactions on behalf of telemarketing and Internet merchants may present a higher risk profile to a financial institution because these transactions tend to have relatively higher incidences of consumer fraud or potentially illegal activities.
The FinCEN advisory describes several types of suspicious activity often associated with payment processors, such as fraud, money laundering and accounts at multiple financial institutions.
Economy Gallup Economic Confidence Index Declines This Week Gallup's U.S. Economic Confidence Index declined to negative 19 this week from negative 17 a week ago. The index remains little changed from the week of Sept. 3, when confidence significantly improved from one of the lowest points of the year.
Gallup said the pullback in economic confidence last week was the result of a modest decline in index components assessing current and future economic conditions. The index found that 15 percent of Americans say the economy is excellent or good, while 41 percent consider it poor. Additionally, 42 percent of Americans now say the economy is getting better, while 54 percent say it is getting worse.