WASHINGTON–The country’s community bankers are raising objections to a proposal that would roll back capital standards for the biggest banks.
The Independent Community Bankers of America said it opposes a proposal from federal regulators to roll back standards on so-called global systemically important bank holding companies, or GSIBs, and their federally insured subsidiaries. Doing so would make them more likely to fail and put the banking system at greater risk, the ICBA told the Federal Reserve Board and Office of the Comptroller of the Currency.
“Community banks will never forget the impact of the 2008 economic downturn when the looming failure of our largest banks threatened to bring down our entire financial system resulting in a bailout at taxpayers’ expense,” ICBA Executive Vice President and Senior Regulatory Counsel Christopher Cole wrote in a comment letter. “The GSIBs, with their immense size, international scope and exposure, and interdependence on one another and desire to take elevated risks, should not be allowed to operate in our financial system without elevated levels of high-quality capital that will be able to absorb credit losses should another economic downturn occur.”
According to the ICBA, the agencies’ proposal would reduce capital levels required by the enhanced supplementary leverage ratio standards that were introduced in 2013 to address the problem of too-big-to-fail financial institutions. The proposal would reduce minimum tier 1 capital requirements by $9 billion for the GSIB holding companies and $121 billion for their depository subsidiaries, according to the agencies.
By comparison, the Deposit Insurance Fund that the FDIC maintains to insure the nation’s banking system holds $95 billion, illustrating the magnitude of the proposed capital reduction, noted the ICBA.