By Alan Zibel
WASHINGTON--Several banking and insurance executives on Thursday
took aim at bank-capital standards being developed by U.S.
regulators, amid bipartisan criticism about how the proposed rules
could impact banks and the economy.
The so-called Basel III rules, designed to strengthen banks'
ability to withstand financial turmoil, also came under fire at a
hearing on Capitol Hill from lawmakers who are concerned about how
they will affect community banks in their districts, and whether
they will impede consumers' ability to get mortgages and other
loans.
The proposal "may force out of business a lot of community and
regional banks," said Rep. Carolyn Maloney (D., N.Y.) at a House
subcommittee hearing.
Officials from Citigroup Inc. (C), Fifth Third Bancorp (FITB),
State Farm Insurance Cos. and TIAA-CREF all took issue with aspects
of how regulators proposed the U.S. version of the rules over the
summer.
Daniel Poston, chief financial officer of Fifth Third, said the
rules would generate too much complexity, even for mid-sized
regional banks like his, which had more than $117 billion in assets
as of September.
Mr. Poston said his bank takes similar risks to a smaller
institution. "We are not complex or interconnected, and we do not
have large trading or capital markets businesses," he said.
James Garnett, head of risk architecture for Citigroup, said
that while tougher capital standards are necessary, they risk
making loans less available. Likely to be affected are consumers
with poor credit histories seeking home loans and small businesses,
he said.
Meanwhile, some insurance companies that also own banks are also
upset at the rules, arguing that they force insurers to comply with
rules that are not designed for the insurance industry.
"Applying a banking framework to companies engaged in the
business of insurance is fundamentally flawed," said Paul Smith,
chief financial officer of State Farm, which owns a savings and
loan.
The Basel III agreement being implemented by U.S. regulators
requires banks to maintain a level of common equity equal to 4.5%
of their assets, weighted for the risks that they pose, plus an
additional 2.5% "capital conservation buffer," also of common
equity. The total 7% common-equity cushion compares to current
common-equity standards as low as roughly 2%.
Both Democrats and Republicans echoed the concerns of community
banks, who are aggressively pressing for an exemption from some of
the rules, arguing that they lack the resources to comply with some
of their more complicated aspects.
The approach in the Basel proposal "does not take into
consideration the diversity of our nation's financial system and
the unique challenges faced by different sized institutions," said
Rep. Shelley Moore Capito, (R., W.Va.) "There needs to be
significant flexibility in the way these rules are finalized that
properly takes into account the difference in their business
models."
Regulators suggested that they might alter their proposal to
accommodate some of the small banks' concerns, but didn't divulge
details. "We are sensitive to the comments of community banks,"
said Michael Gibson, a Federal Reserve official charged with
overseeing bank supervision.
Write to Alan Zibel at alan.zibel@dowjones.com