The Independent Community Bankers of America® (ICBA) called on Congress to exempt community banks from the Basel III capital rule and allow them to continue operating under Basel I regulations. Testifying before the Senate Banking Committee, ICBA Chairman Rebeca Romero Rainey said the capital standards were meant to apply only to the largest international financial firms, not Main Street community banks.

“Under the Basel III capital rule, community bank capital regulation became significantly more punitive and complex,” said Rainey, chairman and CEO of Centinel Bank of Taos, N.M. “Applying the rule to community banks in a one-size-fits-all manner harms the consumers and businesses we serve.”

The Basel III capital standards, which were designed to address capital shortfalls at the largest banks, have punished local community banks that did not cause the Wall Street crisis of 2008-09. While community banks maintain simplified balance sheets and conservative lending practices, which more accurately align to Basel I, the Basel III standards include several provisions that are hamstringing their ability to make loans and meet the needs of Main Street communities.

In her testimony, Rainey spotlighted the negative impact of complex reporting requirements, the capital conservation buffer, excessive use of the high-volatility commercial real estate designation, and the punitive treatment of mortgage-servicing assets and investments in trust-preferred securities. To mitigate the negative impact of these rules, Rainey reaffirmed ICBA’s advocacy for an outright exemption from the Basel III standards for institutions with less than $50 billion in assets—a key provision in ICBA’s Plan for Prosperity legislative platform.

Rainey cited ICBA’s support for several bills to provide relief to community banks, including:

• The Community Bank Access to Capital Act of 2015 (S. 1816), introduced by Sens. Mike Rounds (R-S.D.) and Roy Blunt (R-Mo.), to provide a community bank exemption to Basel III,

• The Financial Regulatory Improvement Act (S. 1484), introduced by Sen. Richard Shelby (R-Ala.), to study the Basel III impact on mortgage-servicing assets, among other provisions,

• The CLEAR Relief Plus Act (S. 927), introduced by Sens. Jerry Moran (R-Kan.) and Jon Tester (D-Mont.), to implement a short-form call report, and

• R. 3791, introduced by Rep. Mia Love (R-Utah), to expand community bank access to the Small Bank Holding Company Policy Statement.

The Independent Community Bankers of America®, the nation’s voice for more than 6,000 community banks of all sizes and charter types, is dedicated exclusively to representing the interests of the community banking industry and its membership through effective advocacy, best-in-class education and high-quality products and services.