How Basel III Capital Requirements Hurt Community Banks

The B3 proposed implementing rules for the standardized approaches are a bad fit for community banks. In fact, I am hard pressed to find any U.S. banks for which they are a good fit. The one-size-fits-all structure of the standardized approaches don't fit any bank. They are far more complicated than they need to be, and punitive for way too many aspects of the U.S. economy, without producing offsetting improvements to safety and soundness. They need to be withdrawn and reworked to take into account the many problems that are being raised, and only reproposed in a form that will truly enhance safety and soundness and strengthen not weaken an already weak economy.

It not only hurts community banks. It hurts all banks.

There is no logic including community banks at all. B3 is and was intented to protect the financial systems from SYSTEMIC RISK. There are not one community bank that can even begin to threaten our system. If you look at the other participants in B3 they don't even have a community banking system. What has taken place is our multi regulators attempting to have another sword to poke at our nations smaller banks. The only explanation I can think of is because they CAN and it will give them more comfort, power an authority but forgetting that it would offer not one iota of national or international protection to the financial systems. If the Obama people want to create jobs and improve the economy they will put a stop to this absurdity.

Shea makes several good points and reinforces Thomas Hoenig's recent comments. Basel has a long, irregular history of unintended consequences starting with favorable risk-weighting for residential mortgages and OECD sovereign debt. This promoted heightened resi lending among US banks and heavy sovereign debt concentrations among Euro banks. We're living with the results.