Enhance the Basel III Regulator Capital Estimation Tool

Now is the Time for All Community Banks to Act
October 2, 2012

CBAI is committed to inform you about Basel III and to vigorously represent your interests with the banking regulators. It is vital that you become familiar with the proposed rules covering new capital requirements and asset risk weights. If implemented as proposed, these rules may endanger the existence of your community bank. Your opportunity to inform the regulators about their impact on your bank and to help shape the rules will expire on October 22nd. Your voice must be heard! Now is the time to speak-up - and we can help. Find CBAI’s comment letters and much more at CBAI's Basel III Resource Center.

Michael Stevens, Executive Vice President of the Conference of State Bank Supervisors (CSBS), joins CBAI in voicing his concerns and the call for community banks to contact their regulators about the impact of Basel III when he said recently, “The industry needs to communicate to the agencies how the proposed rules will impact the way they manage their balance sheets and extend credit. We need a strong banking system with sufficient capital, but one that can also fuel economic development and job growth.” (CSBS Examiner 9/28/2012)

The CSBS has provided banks with suggestions for enhancing the regulators’ Basel III calculator.

Want more out of the Basel calculator?

The Regulatory Capital Estimation Tool provides a valuable look into the proposed rule. However, the result is static based only on the bank’s June 30 call report numbers. The CSBS Examiner offers the following suggestions to enhance the understanding of the proposed changes under a variety of potential scenarios:

    1. Alter the bank’s loan mix. Given the current state of the economy, the portfolio may be more conservative than typical. What if the bank became more aggressive with mortgage lending? What if construction lending were to increase?
    2. Change the value of unrealized gains or losses on available for sale securities. (Basel III Approach Values, cell C7). With the rate environment, many banks have appreciation in their bond portfolios. Under the proposed rules, this has the effect of adding capital. What will happen when rates rise and this appreciation evaporates or even becomes a loss?
    3. Grow the bank. A growing economy will offer growth opportunities for a bank. How do proposed changes in risk weights and growth impact a bank’s ability to remain well capitalized?