In G.K. Chesterton’s short story titled “The Three Tools of Death,” a character named Patrick Royce says, “I give myself to the gallows; and, by God, that is enough.” It is the gallows that awaits this nation’s community banks if proposed Basel III capital rules go into effect.
Simply put, the Basel III capital proposals by the federal bank regulatory agencies are a disaster for the commercial banking industry—especially for community banks! Any bank not designated a Systemically Important Financial Institution (SIFI) by the Financial Stability Oversight Council (FSOC) should not be subject to the Basel III capital guidelines as currently proposed. Basel III was never meant to apply to the smallest banks in our nation. In fact, we don’t think it should be applied to any bank below $50 billion in assets. It was meant to apply only to internationally active, highly interconnected financial firms. So why impose rigid, arbitrary and impossibly high capital regulations to smaller, relationship lenders like community bankers?
Unchanged, these Basel III capital rules, together with the extended near-zero interest rate environment and extremely restrictive proposed mortgage and other new credit rules, will significantly impact in many and very negative ways every community bank in this nation. Basel III (together with all the other piling on) will have the aggregate effect of not only significantly damaging Main Street and rural America and millions of credit-seeking consumers and small businesses, but also will likely do what the Civil War, the Great Financial Panic of 1907, the Great Depression and the Great Recession could not do—wipe out the community banking industry by the end of this decade. If the federal banking regulators truly want to reduce this nation’s commercial banking system to a handful of banks, imposing Basel III capital rules on community and midsize banks will do it!
ICBA is not going to stand by and watch our precious community banking industry be destroyed. We are going to fight back against all this burden and all these new capital regulations with every weapon in our arsenal. I hope the nation’s community banks will join us. We never give up!