Thursday, October 04, 2012

Senators Question Fed on Imposing Basel III and Dodd-Frank Regulations on Smaller Financial Institutions

In a letter to the Federal Reserve Board, Senators James Inhofe (R-OK) and Tom Coburn (R-OK) expressed concern that Basel III and Dodd-Frank Act regulations being crafted for large global financial institutions are being imposed on financial institutions of all sizes, including community banks. Changes in the definition of capital and an increase in the risk weights of many asset classes will squeeze financial institutions as their broader regulatory burdens are increasing. The Senators ask if the Fed ultimately intends to exempt smaller financial institutions from these regulations.

More specifically, the Senators also ask the Fed to explain how it measured the impact on smaller financial institutions as it developed the Basel III proposals. The Fed should also explain how the added costs of the impending regulatory changes will be justified by commensurate improvements in the safety and soundness of financial institutions. Importantly, continued the Senators, the Fed should explain why the Basel III and Dodd-Frank regulations are being imposed on smaller financial institutions when the regulations are designed to protect the financial markets from systemic risk.