Five trade groups said Thursday (June 18) that the federal banking agencies’ Basel capital proposal released in March should be altered to eliminate areas of overcapitalization and better align capital charges with risk.
The Bank Policy Institute, the American Bankers Association, the Financial Services Forum, the U.S. Chamber of Commerce and the Consumer Bankers Association said this in a Thursday press release outlining the contents of a comment letter they submitted in response to the Basel proposal.
The Basel proposal aims to standardize bank capital requirements. A 2023 proposal drew widespread opposition due in part to its high capital charges, and the March proposal is “a significant improvement,” the organizations said in the release.
“However, some overlapping requirements remain, leading to excessive capital charges for certain risks,” they said. “Our recommended changes would further improve risk sensitivity and reduce unnecessary complexity, advancing the proposal’s stated goals. The changes will ultimately benefit bank customers and the economy while promoting a sound banking system.”
The trade groups’ recommendations detailed in the letter include mitigating the overlap between the stress capital buffer and the proposal in terms of operational risk, revising the market risk and credit valuation adjustment frameworks to resolve the over-calibration for these risks resulting from that overlap, retaining the current definition of the terms “commitment” and “unconditionally cancelable,” and reducing the risk weight for appropriately hedged mortgage servicing assets from 250% to 100%.
The groups also suggest in the letter that the implementation date for the proposal be no earlier than Jan. 1, 2028, while allowing banks to adopt it earlier.
PYMNTS reported in March that the federal banking regulators were seeking comment on proposals that would modify existing capital requirements and implement the final components of the Basel III agreement. They said they would accept comments through June 18.
The Federal Deposit Insurance Corporation, the Federal Reserve Board and the Office of the Comptroller of the Currency said at the time in a press release that their proposals would “modestly” reduce the capital requirements for both large banks and smaller banks but would keep the capital levels in the banking system “substantially higher” than they were before the global financial crisis.
