Regulatory Capital
ICBA supports regulatory efforts to impose standardized approach capital requirements for the largest banks to better protect taxpayers from the heightened risk of failure when these institutions use internal models to calculate capital levels.
Take Action Today
Help advocate for community banking by writing a letter to congress.
Join the ICBA Community
Explore the ICBA Community to see discussions on this and other issues.
Position & Background
- ICBA supports strong capital requirements for all banks and their respective holding companies. ICBA continues to support the community bank leverage ratio (CBLR) but does not support the 9 percent reporting threshold.
- Basel III continues to be punitive and to inhibit lending for community banks that do not elect or do not qualify for the 9 percent CBLR. ICBA supports a full exemption from Basel III for non-systemically important financial institutions (non-SIFIs) or amendments as discussed in the background of this resolution.
- Capital standards should not disadvantage community banks relative to credit unions or global systematically important banks (GSIBs) and certain capital deductions like goodwill should be reconsidered by regulators.
- Banking regulators should not impose liquidity coverage ratio restrictions on high-quality investment securities that would impact the liquidity of those securities for community banks. ICBA supports efforts to expand the types of municipal securities that can be categorized as high-quality liquid assets when calculating a bank’s liquidity coverage ratio. ICBA also believes that Fannie Mae and Freddie Mac securities should qualify as high-quality liquid assets.
- ICBA supports regulatory efforts to impose standardized approach capital requirements for the largest banks to better protect taxpayers from the heightened risk of failure when these institutions use internal models to calculate capital levels.
Basel III
Regulators should reduce the CBLR to 8.5 percent to address the temporary but penalizing changes in community bank balance sheets caused by various pandemic stimulus programs. Regulators should also work toward a permanent 8 percent CBLR as a more practical alternative for community banks that execute a straightforward lending business model.
Recognition of ALLL Loss Absorption
FASB’s CECL accounting guidance clarifies that the allowance actually represents the first layer of the capital cushion to absorb bank losses. As such it should be included in tier 1 capital. Moreover, because the CECL accounting guidance requires the allocation of more capital to ALLL, it results in a larger omission from tier 1 regulatory capital calculations. ALLL should be included in tier 1 capital in an amount up to 1.25 percent of risk weighted assets, and the remaining balance of ALLL should qualify for inclusion in tier 2 capital.
Basel III Punishes Mortgage Servicing
The threshold deductions for mortgage servicing assets should be raised from 25 percent of common equity tier 1 capital to 50 percent of tier 1 capital. Additionally, for mortgage servicing assets that are not deducted, the risk weight should be restored to 100 percent from the overly punitive 250 percent.
High Quality Assets Must Be Recognized Under Liquidity Coverage Rules
ICBA believes that municipal debt as well as Fannie Mae and Freddie Mac mortgage-backed securities should be categorized as high-quality liquid assets, commensurate with their treatment in the capital markets, under liquidity coverage ratio rules.
Letters & Testimonies
ICBA Expert Contacts
