Sunday, November 18, 2012

Senate Banking Chair Johnson Urges Calibration of Basel III Capital Standards with Dodd-Frank Regulations

Senate Banking Committee Chair Tim Johnson (D-SD) is concened about the impact of Basel III on US community banks. At recent committee hearings, he urged federal banking agencies to calibrate Basel IIL regulations in coordination with regulations being adopted under the Dodd-Frank Act. While recognizing that the banking agencies have undertaken a number of efforts to explain the proposed rules to community banks, including issuing a capital estimation tool for banks to evaluate how the proposed rules will impact them, the Chairman remains concerned that the proposed risk weights could have an adverse impact on small banks’ ability and willingness to offer mortgages, especially in rural areas. He is particularly interested in how the risk weights were determined for mortgages and securitizations.

 He noted that a strong capital base is a key component of a resilient financial system. This was a major lesson of the financial crisis in 2008, he added, and commended the bank regulators for their efforts to steadily recapitalize the U.S. banking system and establish new standards. But while capital can serve as an important loss-absorbing buffer, he said, capital alone will not prevent financial firms from failing and potentially threatening the broader financial stability.