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Friday, November 30, 2012

ABA: Withdraw Basel III's Proposed Standardized Approach

The Basel III proposals would hurt banks, their customers and the U.S. economy, ABA banker Daniel Poston told two House Financial Services subcommittees at a joint hearing yesterday.

The proposed standardized approach for risk-weighted assets -- one of the trio of Basel III proposals -- “should be withdrawn and an empirical study undertaken … [to] better inform the development of an appropriate set of rules,” said Poston, who is the EVP and CFO at Cincinnati-based Fifth Third Bancorp.

“Rules with the power to create significant economic dislocations must be carefully considered and based on strong analytical research. That was not the case in this rulemaking," he said.

Poston explained that ABA and its member banks are particularly concerned that the proposed standardized approach would mismatch risk among asset classes; risk-weigh nonperforming loans lower than some performing loans; and cause risk weights under the rule to exceed the value of the asset.

The standardized approach's framework for risk-weighting mortgages also "would lead to a significant contraction in the mortgage market, completely upset home equity lending and further tighten and raise the cost of mortgage and home equity credit for borrowers,” he said.

Poston added that banks of all sizes have expressed strong, remarkably consistent concerns about the proposed standardized approach's operational complexity and burdens, and he urged that those concerns be carefully considered.

Read Poston’s testimony.

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