ABA, state associations: Capital standards would harm banking sector, economy

The proposed implementation of the Basel III “endgame” capital regulations would constrain the banking sector’s ability to provide credit and other essential financial services, ABA and 51 state bankers associations said today. In a letter to the Federal Reserve, FDIC and the Office of the Comptroller of the Currency, the associations warned that the agencies have “insufficiently assessed” the proposed standards and failed to consider the potential economic damage to bank customers and the economy. They urged regulators to withdraw the proposal and re-propose a new version “with appropriate and transparent support.”

“In particular, we share the concerns that the agencies rely on seriously insufficient supporting data and analysis to justify the significant increase in regulatory capital the proposal would require and the resulting constraint on lending,” the associations said. “Moreover, the agencies have failed to disclose those data to the public as part of the legally required process of notice and comment.”

The proposed capital standards will restrict funding availability in key parts of the economy, from residential mortgages to small business lending to funding for capital projects, the associations said. “The potential impacts that concern our members would raise serious questions of regulatory policy in any circumstances, but the lack of justification is particularly pointed given the banking industry’s performance during and since the COVID-19 pandemic’s stress on the national economy… In these circumstances, the risks to the country’s ongoing economic prosperity far outweigh any benefits of the proposal, which at best are uncertain and undemonstrated,” they said.