The Independent Community Bankers of America (ICBA) expressed its opposition to a proposal by federal regulators to ease capital standards on global systemically important bank holding companies.
These new capital standards would make them more likely to fail and put the banking system at higher risk, ICBA told the Federal Reserve Board and Office of the Comptroller of the Currency (OCC).
“Community banks will never forget the impact of the 2008 economic downturn when the looming failure of our largest banks threatened to bring down our entire financial system resulting in a bailout at taxpayers’ expense,” ICBA Executive Vice President and Senior Regulatory Counsel Christopher Cole wrote in a comment letter to the Federal Reserve and OCC. “The GSIBs, with their immense size, international scope and exposure, and interdependence on one another and desire to take elevated risks, should not be allowed to operate in our financial system without elevated levels of high-quality capital that will be able to absorb credit losses should another economic downturn occur.”
The proposal would reduce minimum tier 1 capital requirements by $9 billion for the GSIB holding companies and $121 billion for their depository subsidiaries. By comparison, the FDIC’s Deposit Insurance Fund, which ensures the nation’s banking system, holds $95 billion.
ICBA calls upon the federal regulators to retain the current capital standards to protect against further disruptions to the banking system.