One idea I have heard is to allow smaller community banks to opt into a simpler set of risk-weighted capital requirements in exchange for a higher minimum required ratio than under the more risk-sensitive, but more complicated, standardized risk-weighted requirements finalized in 2013. Because so many smaller community banks maintain capital levels well above minimum regulatory levels anyway, the tradeoff of higher requirements for a simpler approach may be promising.
ABA and the state bankers associations wrote to the regulatory agencies last fall urging them to allow highly capitalized banks – those with “capital levels far in excess of any amounts that would be required even after a fulsome application of the complex evaluations” — to be exempt from the complicated Basel III calculations.
In his speech, Tarullo also nodded to the importance of tailored regulation, a long-standing priority of ABA and the state associations, versus strictly defined asset-based tiers. Noting that the traditional asset-based definition of a community bank stops at $10 billion, he added that “for purposes of establishing regulatory objectives, a bank with $12 billion in assets might not be readily distinguishable from one with $8 billion in assets.”
Read the speech.
Read the ABA-state association letter.