Forty-five members of Congress wrote to the prudential banking agencies yesterday to express concern about the capital treatment of Subchapter S banks under the final Basel III capital rules. The bipartisan letter was spurred by ABA and the state associations, which have been urging the agencies to remedy a capital buffer provision in the Basel III rules that disadvantages the 2,200 banks organized as S Corporations.
The lawmakers explained how the rules, which prohibit banks whose capital falls below certain levels from distributing dividends, will force Sub S banks to increase capital ratios at a significantly higher rate than C banks, resulting in a competitive disadvantage.
“Shareholders of Subchapter S banks should not be penalized for investing in a community institution, yet we fear that will be the case,” said the lawmakers, who urged the regulators to reconsider the rules.
Read the letter.