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Keith R. Fisher
The Federal Reserve has extended the comment period on
its Basel III regulatory capital rulemaking from its original September 7
deadline until October 22, 2012. The rulemaking, which was the subject of a previous
Ballard Spahr legal alert, actually comprises three separate rulemakings
intended to implement many of the reforms suggested by the Basel Committee on
Banking Supervision as well as certain U.S.-only requirements mandated by
provisions of the Dodd-Frank Wall Street Reform and Consumer Protection
Act of 2010.
The extension came in response to a number of requests.
These include a letter dated August 2 from House Financial Services
Committee Chair Spencer Bachus and a letter
dated August 7 from 54 bankers' associations. Both letters requested a 90-day
extension in order to adequately deal with the complexities of the proposed
rules. The Fed "split the baby" and granted a 45-day extension.
An extension seems warranted, not only because of the
complexities but also to identify and address any unintended consequences of
the proposed rules. A July 30 article in American Banker discussed tests
by four banks showing what their capital ratios would look like if the Basel
III requirements were in effect now. The requirements will not be implemented
for another five years.
Pursuant to the proposed rule, residential mortgages
guaranteed by the government or its agencies would continue to enjoy a zero
risk-weighting for those unconditionally guaranteed and a 20 percent
risk-weighting for those conditionally guaranteed. All other mortgages, as well
as home equity loans, would be subject to higher risk-weightings, depending on
loan-to-value ratios, which could go as high as 200 percent.
Banks with higher concentrations in mortgages without
government guarantees, home equity loans, and elevated non-performing assets
should face a greater risk of reduction in their capital ratios. The extent of
the reduction could potentially be overly severe. The results of the type of
experimental, internal testing that was reported by American Banker should
arguably be carefully considered by regulators to ensure that the rules as
currently proposed are not too stringent.
The attorneys in Ballard Spahr's Consumer Financial Services Group and Bank Regulation and Supervision Group are experienced in
assisting clients in the preparation and filing of comments in agency
rulemaking proceedings. For more information, please contact CFS Practice
Leader Alan S. Kaplinsky at 215.864.8544 or firstname.lastname@example.org, CFS
Practice Leader Jeremy T. Rosenblum at 215.864.8505 or
email@example.com, or Keith R. Fisher in the Bank Regulation and
Supervision Group at 202.661.2284 or firstname.lastname@example.org.
Copyright © 2011 by Ballard Spahr LLP
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