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Jul03

Basel III’s “minimal” impact on community banks

The Federal Reserve approved a final rule yesterday that will lead banks to maintain stronger capital positions. Ben Bernanke, chairman of the Federal Reserve, explained in the announcement, “With these revisions to our capital rules, banking organizations will be better able to withstand periods of financial stress, thus contributing to the overall health of the U.S. economy.”

With the final rule, there is a new minimum ratio of common equity tier 1 capital to risk-weighted assets of 4.5 percent and a common equity tier 1 capital conservation buffer of 2.5 percent of risk-weighted assets, applicable to all supervised institutions. 

The rule goes on to also increase the minimum ratio of tier 1 capital to risk-weighted assets from 4 percent to 6 percent and includes a minimum leverage ratio of 4 percent.

In the press release, the agency explained that this rule targets institutions that are of higher risk, but for other community banks, the impact of the rule will be “minimal.” Smaller, less complex organizations will not begin phasing in the new rule until Jan. 2015, rather than Jan. 2014 with the larger institutions. 

Even then, the rule might not be much of a change: the Federal Reserve explained that, looking at March 2013 data, nine out of 10 institutions with less than $10 billion in assets would already meet the 7 percent common equity tier 1 minimum plus buffer.

Read the full press release.