Community Banks Get Capital Relief; SIFI’s to Get Slammed

The FRB today released the long-awaited text of the U.S. version of the Basel III rules, doing so in concert with an FDIC announcement that it next week will push the rules farther and release a still higher leverage ratio for the nation’s largest banks. The final FRB standards make numerous concessions to community banks which FedFin concludes will largely defuse Congressional efforts to derail the standards (although critical statements will doubtless continue). The most significant changes in the standardized proposal (see FSM Report CAPITAL186) is the decision to drop changes to residential-mortgage risk weightings (leaving current ones in place as the floor for the biggest banks) and to hike capital for commercial real estate to a far smaller class of assets. The final rules also address community-bank concerns over the AOCI filter by giving them a one-time option to retain the filter. Larger banks will lose it, although FedFin will review the details of the final rule to determine the extent to which any of the proposed modifications related to benchmark assets may have been finalized to promote compliance with forthcoming liquidity rules. Insurance companies and non-bank depository institution holding companies won a major victory, as the final rule effectively omits initial controversial proposals (see FSM Report CAPITAL187) in favor of subsequent proposals.

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