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Contact:	Robert Schmermund (202) 857-3104 Jim Eberle (202) 857-3145	Jim Eberle (202) 857-3145 (work) (703) 893-2593 (home) [email protected]	For Immediate Release September 28, 2005 #05-70
E-mail: [email protected]

ACB URGES CREATION OF BASEL IA ACCORD SIMULTANEOUSLY WITH BASEL II

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Says U.S. Regulators Should Act on Independent Timeline

WASHINGTON, D.C. — America’s Community Bankers testified today that the timing of U.S. implementation of Basel II capital requirements should not be dictated by European countries, and that creating a new Basel Ia accord must be done simultaneously with Basel II so that community banks are not disadvantaged.

Testifying before the House Financial Institutions Subcommittee, Kathleen Marinangel, a member of ACB’s board of directors, said: “We believe strongly that the U.S. regulators attending a regular quarterly meeting next week in Basel [of the Committee on Bank Supervision] should make no commitments to their foreign counterparts in light of the still evolving nature of Basel II implementation in the United States.”

Marinangel, who is also chairman, president and CEO, McHenry Savings Bank, McHenry, Ill., explained that U.S. regulators need the flexibility to make changes to Basel II to ensure safety and soundness and to revise the Basel I requirements to maintain a competitive playing field.

ACB has been in the forefront of raising issues about Basel II and requesting simultaneous changes to Basel I. Marinangel, who has testified previously before the subcommittee on the Basel issue, commended U.S. financial regulators for initiating a dialogue with the banking industry on developing Basel Ia for banks and savings institutions that will not be subject to Basel II.

She told the subcommittee that U.S. regulators are expected to issue an advance notice of proposed rulemaking on Basel Ia as early as next month.

“ACB strongly believes that Basel I must be revised to have more risk-sensitive options at the same time as Basel II moves forward,” Marinangel said. “A revised Basel Ia could include more baskets and a breakdown of particular assets into multiple baskets to take into consideration collateral values, loan-to-value ratios and credit scores. Credit mitigation measures, such as mortgage insurance and guarantees, could be incorporated into the framework, and other revisions could be made to further refine current capital requirements,” she added.

Marinangel also suggested that the regulators could adopt a simplified risk-modeling approach that is consistent with the less complex operations of community banks. And, she said the smallest community banks should have the option of continuing to comply with Basel I as it is currently constituted. “The smaller institutions should not have to deal with the increased regulatory burden of changed capital requirements if they would prefer to remain compliant with a less risk-sensitive Basel I,” she said.

Marinangel told the subcommittee that ACB does not oppose implementation of Basel II to more closely link minimum capital requirements with an institution’s risk profile. “However, we believe that prior to adoption, legislators, regulators and the industry need to evaluate the complexity of the proposal, its competitive impact and the ability of regulators to monitor compliance,” she added.

A regulatory capital floor must remain in place, she said, to mitigate the imprecision inherent in internal ratings-based systems. But the precise level of the leverage ratio should be open to discussion and change since banks complying with Basel II, and possibly those complying with a more risk-sensitive Basel Ia, may otherwise not achieve the full benefits of more risk-sensitive capital requirements if they are pushing up against a leverage ratio.

America’s Community Bankers is the national trade association committed to shaping the future of banking by being the innovative industry leader strengthening the competitive position of community banks. To learn more about ACB, visit www.AmericasCommunityBankers.com.

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