Community banks support capital requirements to stay competitive
Community bankers believe the revision of a Basel II banking provision will prevent large financial firms from gaining an unfair advantage over smaller banks. The Basel II revision, which received regulatory approval this week, proposes a new, permanent capital floor for all banks to follow. Prior to the revision, larger financial firms had more control over their own capital floor requirements, with most setting their risk standards on internal modeling, the FDIC said in a report. The Office of the Comptroller of Currency, the Federal Reserve and the Federal Deposit Insurance Corp. approved the final capital floor requirement this week as the agencies implement Dodd-Frank regulation, which specifically proposed revisions to Basel II's capital floor standards. Under the new proposed guidelines, larger financial firms and bank holding companies would calculate their capital floor using the same general risk-based capital requirements for state member banks. Each bank would have to maintain a total risk-based capital ratio of 8%, and a Tier 1 risk-based capital ratio of 4%. In addition, a bank's total risk-based capital ratio would be the lower of its total qualifying capital to total risk-weighted assets and its total risk-based capital ratio. A bank's tier 1 risk-based capital ratio would be the lower of its tier 1 capital to total risk-weighted assets and its its tier 1 risk-based capital ratio. Write to Kerri Panchuk.