Basel III and community banks
Basel III can be a touchy subject for community banks and rightfully so given the new requirements with which they’d have to comply if Basel III is implemented for these banks.
In an article featured in American Banker, a consultant in the industry explains what could happen if community banks are forced to recognize the new capital requirements. Under Basel III, the Tier 1 Capital Ratio would rise from 4 percent to 6 percent. As a result, the regulated bank might turn to lower-yielding instruments which consequently could hurt earnings. It might also mean that the bank must restrict its lending, and that could mean bad news for the local community that relies on the bank for capital infusions. The requirements could stifle the “relationship-based lending” practices to which community banks are accustomed.
At least for the short term, decisions around Basel III implementation have been delayed, and the Federal Reserve continues to take into account the feedback it receives from community banks and bank associations.