State bankers urge federal agencies to reduce regulatory burdens on community banks

The Conference of State Bank Supervisors (CSBS) recently said the federal government’s efforts to simplify capital rules do not go far enough to relieve the regulatory pressures on community banks.

In a letter sent to the Federal Deposit Insurance Corporation (FDIC), the Board of Governors of the Federal Reserve System, and the Office of the Comptroller of the Currency on Dec. 26, CSBS requested further changes to make it easier to calculate risk-weighted assets for community banks.

One of the big issues is Basel III, a global framework regulating bank adequacy that in 2013 created a standardized methodology for all banks, including community banks. CSBS backs a risk-based framework, but the standardized approach for all banks has increased compliance costs for community banks.

CSBS would like to see rules that would allow regulators to exempt smaller institutions that do not pose system risk from rules and regulations aimed at larger, more complex financial institutions.

“State regulators support simplification, but only if it’s real and meaningful,” John Ryan, CSBS president and CEO, said. “In the past couple years, community banks have adjusted their systems to conform to the current methodology, and small changes will result in additional costs for these banks to tweak their core systems without any perceivable benefit.”

Ryan added that federal regulators need to recognize that regulatory compliance has a disproportionate impact on the cost structure of community banks.