ABA Supports Basel III Pause, Recommends Changes to Capital Framework

ABA today submitted comments on a recent joint proposal by regulators to pause the transition to the Basel III capital framework for banks not using the Basel advanced approaches. The proposal — which was requested by the ABA in a letter submitted in June — would halt the full transition to the Basel III treatment of mortgage servicing assets, certain tax deferred assets, investments in the capital of unconsolidated financial institutions and minority interest, pending a new rulemaking.

ABA supported the delay, noting that now is “an appropriate time to consider the effectiveness of prudential supervision standards… with a view toward simplifications and improvements that will not compromise safety and soundness.” ABA also called upon the regulators to expand the freeze to all banks noting that “[s]implification of the regulatory capital standards under consideration is important for all banking organizations, regardless of size.”

As the regulators work on a further proposal to adjust the overly complex capital rules, the association recommended several substantive changes to the Basel framework. Specifically, ABA called for changes to the treatment of MSAs, DTAs and holdings of regulatory capital instruments, including eliminating or raising certain deduction thresholds. ABA also urged the agencies to adjust the 150 percent risk weight given to high volatility commercial real estate; exclude unrealized gains and losses from banks’ capital calculations; remove restrictions on distributions for Subchapter S banks; and revise its methodology for securities financing transactions and its treatment of securities firms, among other things. For more information, contact ABA’s Hugh Carney.