WASHINGTON — Regulators released a calculator on Monday that is designed to help community bankers project how much capital they will need to hold under Basel III.
The agencies are hoping banks can use the so-called "regulatory capital estimation tool" as they submit comments on proposals to implement Basel III in the U.S. The comment deadline expires Oct. 22.
"The tool is intended to help institutions estimate the potential effect the proposals could have on their capital ratios," regulators said in a press release.
For example, community bankers will be able to plug in their current residential real estate risk-weighted assets against a variety of methods under the proposal, including the simplified supervisory formula approach. They will also be able to figure out their equity exposure or their minority interest as part of the tool.
Still, regulators cautioned bankers of the limitations of the calculator as a precise guide, noting it does not reflect changes regulators may still make to the plan.
"It should not be relied on as indicator of an institution's actual regulatory capital ratios and is not part of the NPRs nor of any final rule(s) that the agencies may adopt," regulators said.
In June, the Federal Reserve Board, the Federal Deposit Insurance Corp., and the Office of the Comptroller released proposals that would implement Basel III in the United States. The plans sparked outrage among community bankers, who argued that the changes, particularly how certain risk weights were calculated, shouldn't apply to smaller institutions. Since then, bankers have become increasingly outspoken to regulators during in-person meetings and on conference calls.
Earlier this month, both Fed Chairman Ben Bernanke and Acting FDIC Chairman Martin Gruenberg tried to provide assurances to community bankers that they would not put into effect a burdensome, onerous rule.
Gruenberg told the American Banker's Regulatory Symposium that regulators are "very conscious" of concerns about how the Basel III rulemaking would affect community banks. They have held informational sessions around the country with bankers about the rules, and the FDIC has designated an expert in each of its regional offices to answer banker questions about the plans.
"Our intention here is to make this proposed rulemaking process as clear and as transparent as we can," Gruenberg said.
Chairman Bernanke has also tried to assure smaller-sized institutions that the regulation would not be a "one-size fits all," saying that the toughest rules would only apply to the largest and most complex institutions.
"We're very interested and very focused on community banks at the Fed," said Bernanke. "We believe they play a very important role in our economy, in our communities."
Regulators, he said, are "trying to make sure that we take into account…community banks when we put out the final rule."
The proposal released by U.S. regulators effectively adopts new international capital standards set by the Basel Committee on Banking Supervision, which are designed to prevent a repeat of the financial crisis.
To be sure, community bankers for the most part had expected the majority of the Basel III plan, which dictates the quality and quantity of capital that institutions must hold, to apply to them, including a core requirement that banks hold 7% in common Tier 1 capital.
But to their surprise, the proposal upped the ante for the roughly 7,000 smaller-sized institutions by changing the risk-weighting calculation for certain assets, including foreign government securities, corporate exposures and residential mortgages. Community banks had expected to be allowed to stay with an earlier edition of the Basel accord, which was initially adopted in the late 1980s.
Regulators have stressed that the rule is intended to strengthen the quality of capital held by smaller banks with many of those institutions already expected to meet the new capital requirements.
According to staff at the Fed, based on pro forma analysis, 90% of bank holding companies under $10 billion would meet
the 4.5% minimum common equity Tier 1 ratio. More than 80% would meet the 7% common equity Tier 1 ratio, including a 2.5% capital conservation buffer. The total shortfall for those firms that don't meet the 7% plus buffer would be roughly $3.6 billion.