ACB: Press Releases

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 November 23, 2005 #05-88
E-mail: [email protected]

TWO MEMBERS OF ACB PROMOTE NEED FOR CHANGES TO BASEL CAPITAL IN SPEECHES ABROAD

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WASHINGTON, D.C. — Two bankers speaking on behalf of America’s Community Bankers before two foreign conferences in mid-November promoted U.S. regulatory efforts to create a Basel Ia capital plan to mitigate competitive concerns between large and small to mid-size banks. Both bankers cautioned against serious competitive inequities that community banks would suffer if the Basel II capital accord for large U.S. banks is not accompanied by changes to the existing Basel I requirements for all other banks.

Michael R. McGuire, president and CEO, Affinity Bank, Ventura, Calif., said a bifurcated capital system would “create a profound competitive disadvantage for smaller banks,” and he said any new capital accord “should treat similar risks comparably so that no institution has a competitive advantage over another.” He was speaking as the community bank keynote speaker at the 16th Special Seminar on International Banking and Finance in Tokyo, Japan.

Kathleen E. Marinangel, chairman, president and CEO, McHenry Savings Bank, McHenry, Ill., told the 1st annual EU/US Retail Banking Forum in Brussels, Belgium, that “community bankers and ACB strongly believe that Basel I must be revised to have more risk-sensitive options. A Basel Ia would 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,” she said.

The dramatically lower capital requirements for mortgages found in a quantitative impact study “would be devastating to community banks if they were not also permitted to hold less risk-based capital for the same assets,” Marinangel said. The QIS-4 study found that capital for mortgages for some large Basel II banks would be 70 percent less than under Basel I standards.

While speaking half a world apart, McGuire and Marinangel expressed similar sentiments. “The larger bank would have to hold significantly less capital than the smaller bank on the same kind of loan, even though the level of risk would be the same,” said McGuire. And Marinangel added that smaller, community banks “will find it more costly to compete for quality assets and may be forced to operate with less capital in order to provide more competitive pricing.”

U.S. banking regulators have delayed implementation of the Basel II capital accord and are seeking comments on revising the Basel I accord.

McGuire, who also spoke to the Japanese forum on the great competitive success of community banks in the United States, said that community banks’ active involvement in their community, their outstanding customer service, federal deposit insurance and federal regulation are what make community banks credible and profitable against even the stiffest competition.

“One of the strong points of good regulation is that any time there is a loss of financial confidence anywhere in the world, and a crisis follows, financial capital flows back into the U.S. banking system because it is seen as a safe haven. And that is largely because the world believes in our regulatory system, because the world respects it, and because the world trusts it — and especially so in times of crisis.”

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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