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Issue

Easing Capital Standards for Community Banks

ABA Position

ABA believes that the Basel III risk-based capital rules have long been a poor fit for community banks. The banking agencies have taken a step in the right direction by proposing simplifications within the parameters that Congress envisioned, but there is room for further relief. ABA supports a simple, optional and accessible community bank leverage ratio that can meaningfully reduce regulatory burden at qualifying institutions by creating an exception to the current risk-based capital standards and any future amendments to these standards.

We believe the regulators should:

  • Recognize that an 8% threshold is appropriate. Data shows that banks with 8% capital clearly meet—in fact exceed—the various risk-based capital requirements. In effect this proves the premise on which the provision in law was based and shows that an 8% threshold meets the purpose of the law. Any exceptions can be dealt with through the supervisory process.
  • Ensure that the Community Bank Leverage Ratio remains optional. The Community Bank Leverage Ratio must remain optional and not be converted into a new—higher—minimum capital standard for community banks.
  • Ensure that the Community Bank Leverage Ratio remains simple. The proposal limits the institutions that qualify the Community Bank Leverage Ratio election through various criteria including asset size, size of off-balance sheet exposures, and mortgage servicing asset (MSA) concentrations. ABA is concerned that the various limiting criteria may add unnecessary complexity to a proposal that seeks to simplify.

We believe the regulators should:

  • Recognize that an 8% threshold is appropriate. Data shows that banks with 8% capital clearly meet—in fact exceed—the various risk-based capital requirements. In effect this proves the premise on which the provision in law was based and shows that an 8% threshold meets the purpose of the law. Any exceptions can be dealt with through the supervisory process.
  • Ensure that the Community Bank Leverage Ratio remains optional. The Community Bank Leverage Ratio must remain optional and not be converted into a new—higher—minimum capital standard for community banks.
  • Ensure that the Community Bank Leverage Ratio remains simple. The proposal limits the institutions that qualify the Community Bank Leverage Ratio election through various criteria including asset size, size of off-balance sheet exposures, and mortgage servicing asset (MSA) concentrations. ABA is concerned that the various limiting criteria may add unnecessary complexity to a proposal that seeks to simplify.
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