Change Basel III or More Small Banks Will Vanish: AB Panel

By Victoria Finkle and Donna Borak

Regulators should take immediate steps to ease proposed capital requirements for community banks, or risk shrinking their ranks further, bankers and analysts said Friday. Last month, community bankers won more time to voice growing concerns over a set of proposals that would enact Basel III capital and liquidity requirements for all institutions. The banking agencies said they will provide an additional 45 days of public comment on their June proposal with a new deadline of Oct. 22. Community banks are hoping the extra time will help to amass support within Congress and elsewhere to soften the proposal and lessen its impact, but panelists on Friday warned that the task is still a difficult one. “The problem is they genuinely believe in the community bank mission but then they want to regulate community banks so they can never fail. And those are two incompatible goals that have yet to be reconciled,” said Karen Shaw Petrou, managing partner at consultancy Federal Financial Analytics. The proposal by U.S. regulators effectively adopts international capital standards set by the Basel Committee on Banking Supervision, which are designed to prevent a repeat of the financial crisis.