ABA, State Associations Call on Regulators to Finalize Capital Simplification Proposal

The American Bankers Association and all 52 state bankers associations on Friday wrote to the heads of the financial regulatory agencies urging regulators to finalize immediately the regulatory deduction portion of their recent proposal aimed at simplifying the complex Basel III capital calculations. That part of the proposal would increase from 10 percent to 25 percent the regulatory deduction thresholds for mortgage servicing assets; certain deferred tax assets; and investments in the capital of unconsolidated financial institutions, such as TruPS.

The associations pointed out that the overly complex regulatory deduction provisions included in the Basel III final rule are “unnecessarily complex and unwieldly, particularly for community banks,” and that this level of complexity “offers little value for supervisors or bank management.” They added that “while we believe it is also important for the agencies to reconsider the risk weight treatment of the portion of exposures that are not deducted from capital, we do not believe this reconsideration should slow the finalization of this rule.”

An additional element of the simplification proposal — which would replace the complex definition of HVCRE exposures with a definition for high-volatility acquisition, development or construction loans — was rendered largely irrelevant with the enactment of S. 2155, which clarified the regulatory capital treatment of acquisition, development and construction loans characterized as HVCRE. Given this clarification, the associations recommended that the banking agencies immediately finalize the regulatory deduction portion of the simplification proposal.

ABA previously filed a more extensive comment letter on the proposal, outlining its position on the proposal and offering additional feedback to the agencies.