The proposed Basel III capital requirements could have the unintended effect of raising borrowing costs for homeowners with weaker credit profiles, banking analysts argued this week.
The Senate Bank Committee met Wednesday to question agency officials looking to adopt stricter capital requirements by the Basel Committee on Banking Supervision.
Originally, bank companies were supposed to meet a Jan. 1, 2013 deadline, but on Nov. 9 government agencies issued notices that the deadline had been postponed to an unspecified date because of ‘the volume of comments received and the wide range of views.’
Many of those views expressed concern that the Basel III capital requirements — which are designed to ensure banks have risk buffers in place to handle financial downturns — would in essence make it harder to lend to certain types of borrowers.
Under current rules, residential mortgages generally receive identical capital treatment. But, under the proposed rules, risker loans are going to restrict capital and as a result, potential homebuyers — those with less-than-pristine credit — will either have to pay more if the loan is riskier, or they could end up without a loan at all.
"The proposed standard would raise the capital requirement for the riskiest mortgages and commercial real estate loans while actually lowering the charge on relatively safer residential mortgage loans," said John Lyons, chief national bank examiner of the Office of the Comptroller of the Currency in a statement.
He added, "With respect to broader implications for the housing market, while the proposal would actually lower capital requirements for the safest mortgages, it would also raise capital requirements for riskier mortgages, which could raise the incremental costs of such mortgages."