ABA Op-Ed: Regulators Need to Revisit Bank Capital Rules

In an American Banker op-ed today, ABA EVP Wayne Abernathy and VP Hugh Carney explain why it’s time for regulators to assess and calibrate capital requirements for banks of all sizes. “[H]igher capital levels have helped to make the system safer, but asking banks to hold too much capital, the wrong kind or making the calculation methodology too complex can also have negative repercussions for consumers and the broader economy,” they wrote.

Specifically, Abernathy and Carney urged agencies to finalize a proposal from last year simplifying the regulatory treatment of mortgage servicing assets, deferred tax assets and investments in trust-preferred securities. They also called for the agencies to act quickly to implement an American Bankers Association and state association-developed plan — mandated in the S. 2155 regulatory reform bill — to simplify Basel III compliance for highly capitalized community banks. Under this approach, community banks with 8 percent capital or more would be deemed in compliance with Basel III without having to do the complicated calculations.

Abernathy and Carney endorsed the agencies’ proposals to align stress testing and capital requirements for larger banks, including the addition of a stress capital buffer. They also highlighted the agencies’ aim to “reinforce the interaction of the dual concepts of risk-based capital measures and the backstop value of leverage capital” for the largest institutions.