Time to End TBTF!
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Late last week, the IBAT Board of Directors unanimously voted to support S.798, the Brown-Vitter bill designed to end too big to fail. The legislation, one of a number of bills that have been introduced in the 113th Congress to address the widespread sentiment that too big to fail is still alive and well and was not eliminated in the passage of Dodd-Frank, is gaining considerable momentum. Prominent industry leaders, including Dallas Federal Reserve Bank President Richard Fisher and FDIC Board Vice Chairman Tom Hoenig, have been leading the chorus who believe that another financial crisis would put American taxpayer dollars at risk.
In an email to Texas Senators John Cornyn and Ted Cruz, IBAT president and CEO Chris Williston touted the positive elements of the bill. "Given the fact that [S.798] eliminates future bailouts of large systemically important financial institutions by the American taxpayer, eliminates potential Basel III application for community banks and provides much needed regulatory relief for the industry, it is obvious to us that S.798 is the most logical vehicle to address the future competitiveness of all industry stakeholders and restore consumer confidence in our financial system," Williston said.
The legislation requires that institutions over $50 billion in assets maintain capital levels of 8%, with the requirement increasing to 15% for institutions over $500 billion. Community banks under $50 billion would not be subject to Basel III capital standards adopted by all federal regulatory agencies. IBAT acknowledged that certain other components of the Basel III standards, as proposed for community banks in the legislation, needed to be eliminated. "The IBAT Board instructed staff to work to eliminate any aspects of the Basel III proposal, specifically the inclusion of Accumulated Other Comprehensive Income (AOCI) in any final capital calculation and its applicability to community banks," Williston said.
It is likely that the banking industry will be divided over the legislation. The big banks and their trade organizations are staunchly opposed and have unleashed a plethora of lobbyists to work on their behalf to defeat the legislation. Community bank groups widely favor the proposal. Williston concluded, "This legislation acknowledges what IBAT has long advocated and has been working to achieve... recognition that one-size-fits-all regulation makes no sense when you contrast the business models of community banks and the financial conglomerates."
