Federal agencies urged to close capital rule proposal 'immediately'

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A proposal issued over a year ago by federal banking agencies to simplify risk-based capital rules and ease compliance burdens for community banks has still not been finalized, and mortgage brokers and bankers are calling on them to do just that.

"The associations strongly support the agencies' efforts to simplify the rules in order to reduce unnecessary complexity and eliminate provisions that create unnecessary burdens and hinder financial stability and economic growth. However, it is frustrating that the proposal has not been finalized, even after almost a year after the comment period closed," the Mortgage Bankers Association and Independent Community Bankers of America wrote in a joint letter to the agencies.

The MBA and ICBA urged the federal agencies to immediately close the comment review period and finalize the rulemakings, and requested a meeting to discuss the simplifications in further detail.

The organizations also highlighted capital planning challenges brought on by lack of certainty on issues discussed in the proposal.

"Recently, the agencies issued proposed rules implementing the Community Bank Leverage Ratio (CBLR) framework — a provision that was included in the regulatory reform law passed by Congress this year," read the letter signed by MBA Senior Vice President Stephen O'Connor and ICBA First Vice President James Kendrick.

"While this new provision provides an important benefit (regulatory burden relief) for qualifying community banks, including simplified regulatory capital calculations that would allow an entity to avoid the Basel III MSA rules, and therefore, not be subject to the rules under the proposal, the fact is that some community banks would not qualify for this benefit because of the strict eligibility factors that apply under the CBLR framework. In fact, many of our members would still be subject to the proposal, which is yet to be finalized," it said.

The proposal, issued by the Federal Deposit Insurance Corp., Federal Reserve Board and Office of the Comptroller of the Currency, was set forth as part of the Economic Growth and Regulatory Paperwork Reduction Act requiring regulators to consider ways to lessen compliance hurdles based on industry feedback. Changes would apply to banks with less than $250 billion in assets and under $10 billion in total foreign exposure that do not follow "advanced approaches" to capital rules.

The rulemakings would redefine "high volatility commercial real estate exposures," more clearly as "high volatility acquisition, development, or construction," and simplify how banks deduct mortgage servicing assets and certain tax assets from regulatory capital.

Upon being issued last September, the rulemakings faced criticism from the mortgage industry, with representatives and regulators arguing that they fell short of their goal and were only "different" but no less burdensome.

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Risk-based capital rule Community banks Compliance Mortgage Bankers Association ICBA Federal Reserve FDIC OCC