Capital Requirements Raise ‘Serious Issues’, Say Banking Groups

International banking capital rules introduce “serious issues” for US banks, according to a joint letter from financial services groups to the Federal Reserve.

The American Bankers Association (ABA), Bank Policy Institute, Financial Services Forum, Institute of International Bankers, and Securities Industry and Financial Markets Association (SIFMA) have written to Fed chair Jerome Powell to raise their concerns about the implementation of Basel III reforms.

The agreement includes a suite of rules that will change how much capital banks need to hold against credit, market and operational risk exposures. The rules are designed to make capital requirements more risk-sensitive while reducing variability of risk-weighted assets.

The trade groups expressed concerns that a recent review by the Federal Reserve of the rules ignored the costs of higher capital requirements, which it said would primarily be borne by end users, small businesses and consumers.

In the letter, the groups also claimed that the rules were based on a view that banks were not in a position to withstand economic turmoil, a view disputed by the Federal Reserve’s own stress test results as well as the views of analysts and investors.

The ABA recently called the reforms the “most concerning” of the agendas being proposed by international banking regulators, accusing them of using the collapse of Silicon Valley Bank and other banks as a cover.

The trade bodies also argued there was a disagreement over whether the Basel III regime was set to increase or avoid increasing capital requirements for large banks. They have urged the Federal Reserve to allow a 120-day comment period on the proposed rule so that these issues can be addressed.

The letter stated: “This rule will have a profound effect on the US banking system and US capital markets. This will have a direct impact on the ability and cost of businesses and individuals to obtain credit and capital and manage business risks.”