A bipartisan group of 53 senators sent a letter to bank regulators expressing concern about applying new Basel III capital standards to community banks.

They sent the letter — spearheaded by Pat Toomey, R-Pa., and Mark Warner, D-Va. — to the heads of the Federal Reserve, the Office of the Comptroller of the Currency, and the Federal Deposit Insurance Corp.

But regulators appear immovable in their push to enact the Basel III proposals, which are set to begin their phase-in in 2013 for completion by January 2019.

The proposed rules were released in June and came as a surprise to many community bankers who had held out hope that they would be able to avoid many of the new requirements. Community bankers thought there would be an asset cutoff, similar to how banks with under $10 billion in assets fall outside of the Consumer Financial Protection Bureau’s supervision.

“Community banks have little or no access to capital markets,” the letter states. “In most cases, they must rely on the bank's officers, directors and shareholders to raise additional capital. Raising capital for community banks in the best of times is challenging and nearly impossible in times of economic stress. We are concerned that the proposed capital rules could exacerbate these funding challenges.

Both Fitch Ratings and even the FDIC director feel Basel III capital standards would hamper mortgage lending at smaller banks.

Despite the growing opposition, Isaac Boltansky, a D.C. policy analyst at research firm Compass Point, said it is unlikely bank regulators will suddenly shift course.

“Our conversations lead us to believe that the bank regulators — particularly Dan Tarullo at the Federal Reserve — are committed to enacting the proposed capital requirements in a uniform manner across the banking sector,” Boltansky said.

“While it is possible for small tweaks to be made to the already lengthy implementation timeline, we continue to believe that the proposed capital rules will be finalized with only minimal changes,” he said.

Banking regulators are accepting public comment on their recently proposed bank capital rules until October 22.

jhilley@housingwire.com

@JustinHilley