WASHINGTON — Federal regulators are facing a growing rebellion from bankers, lawmakers and now even fellow supervisors over a proposal to implement Basel III capital rules in the United States.

The Conference of State Bank Supervisors issued a statement Wednesday strongly condemning the plan, saying they supported regulators' intentions but that the approach taken by the federal banking agencies in their June proposal would be damaging.

"The proposed rules are highly reactionary to the most recent economic events and do not represent a thoughtful, long-term approach in the best interest of the U.S. banking system or the national economy," Greg Gonzales, chairman of CSBS and the Tennessee Commissioner of Financial Institutions, said in a press release.

Gonzales said regulators should try to address issues through better risk management and the supervisory process, instead of creating a capital framework that is "more complex and more prone to volatility."

The trade group — which represents state regulators — said it plans to follow up with a detailed comment letter. The deadline for such letters is Oct. 22.

The CSBS statement follows a rising tide of policymakers raising issues with the proposal, including Tom Hoenig, a board member on the FDIC, who has derided Basel III as too complicated.

Last week, a bipartisan group of 53 senators sent a letter to agency heads stressing that the proposed capital rules are too complex and expensive for community banks to comply with and will hurt their ability to lend to borrowers.

The proposal has also incited an angry reaction from community bankers. The Independent Community Bankers of America quickly endorsed the CSBS statement on Wednesday.

"ICBA strongly agrees with the CSBS that proposed Basel III capital standards are too complex and will drive many traditional community banks out of the mortgage market," said Camden Fine, ICBA president and CEO, in a statement. "They should not have to jump through the same regulatory hoops as the largest and riskiest institutions that contributed to the greatest financial crisis since the Great Depression."

A spokeswoman for the Federal Reserve Board declined to comment. Spokesmen for Federal Deposit Insurance Corp. and the Office of the Comptroller of the Currency could not be immediately reached.

The agencies' proposal to implement Basel III in the U.S. has sparked outrage among community bankers, who have argued that the changes, particularly how certain risk weights are calculated, shouldn't apply to smaller institutions.

The proposal effectively adopts new international capital standards set by the Basel Committee on Banking Supervision that are designed to prevent a repeat of the financial crisis.

While bankers anticipated the majority of the Basel III plan, they were not expecting that roughly 7,000 smaller-sized institutions would have to change the risk-weighting calculation for certain assets, including foreign government securities, corporate exposures and residential mortgages.

CSBS called for further study on many of the risk weights and the potential impact on the industry.

"We continue to believe this is imperative," Gonzales said. "The standardized risk-weighted assets proposal would present key challenges for mortgage lending. At a time when the government lacks a long-term solution to housing finance, the proposed framework would further stifle mortgage lending by traditional depository institutions."

Regulators, including Fed Chairman Ben Bernanke and acting chairman of the FDIC Martin Gruenberg, have tried to provide assurance to community bankers that they would not put into effect a burdensome, onerous rule.

On Wednesday, Comptroller of the Currency Tom Curry backed that sentiment, acknowledging the fear from community banks that they will have a difficult time complying with the new regulatory capital requirements, most especially common equity Tier 1 capital and Tier 1 risk-based capital ratios.

"I know that community bankers are worried about the proposed capital requirements," said Curry in a speech before the National Banking Association's annual convention. "We have spent a good deal of time analyzing the impact, and we believe that most of the community institutions we supervise already have enough common equity to meet the new tests."

Regulators unveiled a calculator last month that bankers can use to help estimate their capital requirements under the proposed rule.

The banking agencies 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, which includes 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.

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