Update on Basel III Implementation

The community banking industry is eagerly awaiting further guidance from the country's federal banking agencies following their announcement earlier this month that they do not expect to be able to implement new proposed regulatory capital rules consistent with the more rigorous international capital standards set forth in the comprehensive reform package known as Basel III by January 1, 2013.

Representatives from the Board of Governors of the Federal Reserve System, the Office of the Comptroller of the Currency and the FDIC testified before the Senate Committee on Banking, Housing and Urban Affairs on November 14, stating that adopting the rules by the original deadline could potentially have a negative impact on smaller community banks. Earlier this month, the federal banking agencies had explained in a joint press release that the delay in implementation was due to the numerous comment letters (over 1,500) submitted in response to the rulemaking notices. Among those letters were concerns from many in the banking industry, particularly smaller community banks, about their ability to accommodate such significant rule changes by the end of the year.

In announcing their decision to delay the implementation of the proposed rules, the banking agencies indicated that they are aware of the directive from the Basel Committee on Banking Supervision (BCBS) for all members of the committee to adopt the proposed rules by January 1, 2013, but such timing concerns are outweighed by the operational and other considerations of those in the U.S. banking industry in determining appropriate implementation dates for final rules and related transition periods. It will be interesting to see if and how the banking agencies decide to make material changes to the proposed rules to address the numerous concerns raised in the comment letters.

By way of background, the federal banking agencies in June issued three notices of proposed rulemaking that would revise and replace the current regulatory capital rules by making them consistent with the more rigorous international capital standards agreed to by the BCBS in Basel III as well as certain provisions of the Dodd-Frank Act.