Last week's unanimous vote by the Board of Governors of the Federal Reserve System adopting final Basel Rules has drawn generally positive reactions from community bankers. Many IBAT members who responded to IBAT's breaking news email last week were relieved that federal regulators abandoned preliminary plans to apply complicated risk weighting categories to various real property assets.
Bankers also rejoiced when learning that community banks under $250 billion in assets have an option to opt out of marking to market the value of their bond and securities portfolios (AOCI) and the potential devastating impact that requirement would have meant for capital impairment as rates begin to rise. Still others (banks under $15 billion) celebrated the grandfathering of Trust Preferred Securities consistent with the phase out (2031) in the Dodd/Frank Financial Modernization Act.
While IBAT was disappointed that regulators chose not to provide an outright Basel III exclusion for community banks under $50 billion, as advocated in IBAT's comment letter, IBAT President and CEO Chris Williston offered these observations. "Generally, we are ecstatic with the final rule. While we didn't get everything we hoped for, we commend the regulatory community for listening to our concerns and making the necessary adjustments with the realization that community banks operate under a different business model than the large systemically important banks and deserve special considerations and exemptions accordingly."
ICBA has raised concerns about the new threshold limits of mortgage servicing rights which could affect some members who maintain large mortgage portfolios and the new capital conservation buffer (2.5% of risk-weighted assets) that will be required under the proposal. The Fed has provided a one page guide on the implications of the final rule on community banks that can be found here.
So what's next? The FDIC and the OCC are both expected to approve identical final rules this week. Once approved by all three agencies, the new Basel III requirements will go into effect for community banks under $50 billion on January 1, 2015 barring any Congressional attempts to modify the final rules. Lawmakers are carefully reviewing the implications of the new rules and it is possible that legislation will be introduced to further modify or eliminate the rule entirely prior to its implementation.
Staff contact: Chris Williston, email@example.com, 512-474-6889