ABA Op-Ed: Efforts to Simplify Basel Could Add Greater Complexity

Regulators’ efforts to simplify Basel III’s already-complex capital requirements could layer on additional complexity as new rules are issued, ABA VP Hugh Carney cautioned in an American Banker op-ed today. While Carney acknowledged the importance of streamlining the requirements for the largest banks — an effort sometimes referred to as “Basel IV” — he criticized the Basel Committee’s fragmented approach to reform.

“Over the past two years, the committee has issued more than a dozen new regulatory capital proposals in a bid to simplify. The proposals were released in a piecemeal fashion, with each new proposal seemingly unrelated to the previous one,” Carney wrote, adding that this lack of cohesion has made it difficult for banks of all sizes and to provide appropriate feedback. “It has been difficult for even the largest and most sophisticated banking organization to provide informed comment on the proposal. For community banks… it is downright impossible.”

Currently, the nation’s largest banks are responsible for monitoring more than a dozen regulatory capital measures and undergoing extensive annual stress testing. As the Basel Committee continues to work toward streamlining these standards, Carney recommended that U.S. regulators seek broader engagement on the issue through an advance notice of proposed rulemaking, which would allow the public, Congress and the industry an opportunity to provide insight in to what modifications should be made.

“Whatever options U.S. regulators are considering to simplify the standards, it is essential that they engage the public, Congress and industry in the discussion,” Carney said. “This would allow the public to weigh in on crucial questions… including whether agencies are striking the right balance between risk sensitivity and simplicity, whether simplification is being done in a capital-neutral manner, whether the U.S. approach is consistent with Basel and how community banks will be affected.”


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