Financial regulators will issue by year-end their proposal exempting highly capitalized community banks from the Basel III capital calculations, as directed by S. 2155, FDIC Chairman Jelena McWilliams told members of the Senate Banking Committee today. Under the law, community banks with under $10 billion in assets that exceed a yet-to-be-determined capital ratio between 8 and 10 percent will be considered in compliance with all other capital and leverage requirements.
McWilliams said that the agencies are approaching the community bank capital regime from “a simple perspective,” noting that “we have made things too complicated” and that community banks “should not be subject to Basel III requirements.” She added that the system regulators put in place going forward should be commensurate with the risk profile of small community banks.
Turning to supervision for larger institutions, Federal Reserve Vice Chairman for Supervision Randal Quarles affirmed that the Fed’s “highest priority” continues to be establishing a framework for applying enhanced prudential standards for banks holding $100-250 billion in assets. Quarles said he expects the Fed to issue its rulemaking “very soon” and “certainly before the end of the year.” He added that as the Fed continues to consider the full set of rules that apply to the nation’s largest banks — including the capital framework, liquidity rules and stress testing requirements — consideration of the global systemically important bank surcharge would “inevitably” be a part of that discussion.