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Wednesday, October 24, 2012

Keating Op-Ed: Start Over on Basel III

The proposed Basel III rules began with good intentions, but in attempting to apply lessons learned from the global financial crisis they overdose on complex formulas that threaten to kill the patient, ABA President and CEO Frank Keating said today in an Investor’s Business Daily editorial.
U.S. regulators must recognize this threat and withdraw their proposed one-size-fits-all rules before they punish the recovering housing markets and undermine the U.S. economy. It’s time to start over.
He said the regulators should return with clearer rules that require banks to keep adequate capital levels commensurate with the diverse size, complexity, and range of business models in the U.S. financial markets.
The premise of the Basel agreements is that a single, strong set of global capital standards will lead to a more resilient banking sector. But that works only if the countries adopting the standards are served equally well by them. That is not the case in the U.S.
Most U.S. banks are already well capitalized, he explained, but they still will need about $60 billion to meet the proposals’ higher new minimums.
The pressure the new rules put on bank profitability will make it difficult for any size bank to attract this money, but finding investors will be particularly hard for the … smallest institutions, which capital markets tend to neglect.
What is perhaps most harmful to banks and the U.S. economy, he added, is that the Basel plan would force banks to shift their asset mix to meet the new international standards, steering them away from loans to creditworthy borrowers that carry higher capital requirements, including many mortgage and basic business loans.
Putting a scarlet letter on these assets will only cause a retraction in financial activity when the U.S. economy can least afford it … It's far better to withdraw and rework these rules now than to make a commitment we will regret for years.
Read Keating’s editorial.

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