On Thursday, five industry groups expressed their concerns regarding the Basel capital proposals released by the federal banking agency back in March. They argued that these proposals need adjustments to remove excess capital areas and better match capital burdens with associated risks.
Organizations like the Bank Policy Research Institute, American Bankers Association, Financial Services Forum, American Chamber of Commerce, and Consumer Banking Association shared their views in a press release. They mentioned that while the proposals aim to create standardized capital requirements for banks, the 2023 version faced significant backlash primarily due to its steep capital demands. They acknowledged, however, that the March proposal is a notable improvement.
Despite this, they noted some overlapping requirements continue to impose excessive capital burdens for specific risks. “We believe the changes we propose will enhance risk sensitivity, cut down on unnecessary complexity, and support the goals outlined in the proposal,” they stated. Ultimately, these adjustments, they suggested, would benefit bank customers and the economy while fostering a stable banking environment.
The recommendations outlined in their letter include addressing the overlap between the stress capital buffer and operational risk. They also proposed reviewing the frameworks for market risk and credit rating adjustments to mitigate risk overadjustment stemming from this overlap. Additional suggestions involve retaining the current definitions of “commitment” and “unconditionally cancellable,” along with reducing the risk weight for well-hedged mortgage repayment assets from 250% to 100%.
The group further indicated that the proposed implementation date should be set no later than January 1, 2028, while allowing banks the option to adopt the proposal sooner.
Earlier in March, it was reported that federal banking regulators were seeking feedback on plans to adjust existing capital requirements and implement the final elements of the Basel III agreement, with the comment period closing on June 18.
At the time, the Federal Deposit Insurance Corporation, Federal Reserve Board, and the Office of the Comptroller of the Currency noted that the proposals would lead to a “modest” reduction in capital requirements for both large and small banks, yet would maintain capital levels well above pre-global financial crisis figures.
