I never subscribed to pessimistic theories that bank regulators were out to rid this world of community banks. After all, if there were no community banks, there would be no need for regulators since it appears that no one has bothered to regulate or close too-big-to-fail banks. But, I must admit, as I walked out of the Dallas FDIC regional offices last Friday, having just attended a two hour briefing on the new proposed rules on Basel III and the new standard for risk weighting bank assets, the thought crossed my mind: “maybe someone does have their sights set on the demise of community banks.”
At this point, Basel III is just a set of proposals, a notice of proposed rulemaking (NPR) issued for all of the world to shoot at. Regardless, it’s hard for me to fathom how, once again, community banks have found themselves in the crossfire of proposed new international capital adequacy standards that were, for all intents and purposes, intended for the giant “worldly” banks. It makes me wonder what exactly might be in the water in Basel, Switzerland.
Texas community bankers are baffled and, frankly, pissed off. What was to be a 30-minute question and answer period at the conclusion of the FDIC briefing turned into a 30-minute gripe session. “Do you have any clue whatsoever what this proposal, if not modified, would mean for our ability to provide mortgage and small business loans to our customers?” one participant asked.
Another observed, “This essentially ends any possibility of attracting new investors to community banks. These new capital levels, coupled with the risk weighting of community bank bread-and-butter loan assets and increased regulatory burden, makes the community bank business model unattractive for current or would-be investors.”
Several members of the House Financial Services Committee have weighed in, too. In a letter dated July 17, 2012, to Fed Chairman Bernanke, FDIC Chairman Gruenberg and Comptroller Curry, nine members wrote:
“we believe these new standards could significantly curb the ability (of community banks) to lend and provide liquidity in their local markets.
“As community based organizations with only local or state level reach, holding them to the same standards as international systemically significant institutions could place them at a competitive disadvantage, in part due to limited investor demand for small capital offerings and nominal access to capital markets beyond their regions.”
The letter went on to challenge the regulators to provide answers as to why community banks should be subjected to the same capital standards based on their size and complexity leading to a “one-size-fits-all” standard.
Make no mistake, these two NPRs threaten the future viability of community banks. This is no time to lay back and watch your franchise be further eroded or doomed to extinction because some over-educated, under-experienced bureaucrat from some other country decided this was a good idea. IBAT will come out blazing in our comment letter to the agencies and you should too. Comment letters are due before the close of business on September 7, 2012. We should all ask for no less than an exemption from the proposals for all community banks regardless of size, based solely on risk profile, and return to the Basel I standards that have served the industry well.
There seems to be a universal opinion that “community banks didn’t create this mess,” and are “the good guys” in the financial services world. There also is recognition that the ever-increasing regulatory burden is strangling smaller banks. It is baffling that, in this environment, we would see a proposal with so much burden and so little benefit to community banks and the customers they serve. This is a good idea? Really?
I commend the FDIC for having this meeting and exposing these proposals for what they are…bad ideas that will do nothing but create further uncertainty and frustration leading to mass consolidation of community banks. Funny, but I almost believe that is exactly why the FDIC sponsored the meeting.
After all, they need community banks to regulate too.