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Basel III Myths and Facts

Now is the Time for All Community Banks to Act
October 11, 2012

Myth: Basel III only applies to banks with assets over $500 million

Fact: Basel III applies to all banks regardless of size. The proposal even applies to $50 million community banks in rural areas. There is an exemption for consolidated bank holding companies under $500 million, but even their banks are fully subject to the provisions of Basel III. There is no exemption for savings and loan holding companies of any size.

Myth: Inclusion of accumulated other comprehensive income (AOCI) in capital will help my bank meet regulatory capital requirements

Fact: While many community banks have positive balances in their AOCI positions, those positions are subject to volatility due to changes in interest rates and credit spreads. The current positive balances are a product of continual ultra low interest rates, which cannot be sustained forever. Rapid increases in interest rates and credit spreads can reverse the gain position and force it to become negative in short order. These changes would have an immediate adverse impact on your regulatory capital.

Myth: My bank maintains very high levels of tier 1 capital today so I won’t need to worry

Fact: Even banks that exceed current minimum regulatory capital levels should be concerned. Adverse changes to residential mortgage risk weights, new requirements for common equity capital, inclusion of AOCI in regulatory capital, phase out of trust preferred securities, along with the adoption of new capital conservation buffers will deplete your current capital position and over time could cause your bank to fail to meet new regulatory minimums.

Myth: The Basel III proposal has a long phase-in period so I will have plenty of time to get my bank ready

Fact: Although the proposal allows for a phase-in period for certain provisions, there are many headwinds that will hamper the ability for community banks to meet and maintain new minimum regulatory capital requirements. Ultra low interest rates, a fragile economic recovery, threat of another recession, and constraints placed on residential lending all could contribute to your bank failing to meet regulatory minimums once the phase in periods have ended. And because community banks do not have access to the capital markets, the limited sources of new capital include now and existing shareholders and retained earnings, which will not be easily generated in another economic downturn.

CBAI is committed to inform you about Basel III and to vigorously represent your interests with the banking regulators. It is vital that you become familiar with the proposed rules covering new capital requirements and asset risk weights. If implemented as proposed, these rules may endanger the existence of your community bank.

Your opportunity to inform the regulators about their impact on your bank and to help shape the rules will expire on October 22nd. Your voice must be heard! Now is the time to speak-up.

Find instructions for submitting your own comment letter and more at CBAI’s Basel III Resource Center.

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Last Chance to Comment on Basel III

Now is the Time for All Community Banks to Act
October 17, 2012

One of the most important regulatory comment deadlines in memory will be here in less than a week!

CBAI has responded to the regulators and submitted specific recommendations regarding a dozen of the proposed Rules which would most negatively impact community banks. In addition, CBAI called for a community bank exemption to Basel III. Read CBAI’s Comment Letter.

CBAI is committed to vigorously represent your interests with the banking regulators. It is vital that you become familiar with the proposed rules covering new capital requirements and asset risk weights. If implemented as proposed, these rules may endanger the existence of your community bank.

Your opportunity to inform the regulators about their impact on your bank and to help shape the rules will expire on October 22nd. Your voice must be heard! Now is the time to speak-up.

Find instructions for submitting your own comment letter and more at CBAI’s Basel III Resource Center.

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CBAI Issues (final) Comment Letter on Basel III

Now is the Time for All Community Banks to Act
October 15, 2012

CBAI has responded to the regulators with specific recommendations regarding a dozen of the proposed Rules which most negatively impact community banks in addition to renewing its call for a community bank exemption to Basel III. Read CBAI's Final Comment Letter

CBAI is committed to vigorously represent your interests with the banking regulators on Basel III. If implemented as proposed, these rules may endanger the existence of your community bank.

Your opportunity to inform the regulators about their impact on your bank and to help shape the rules will expire on October 22nd. Your voice must be heard! Now is the time to speak-up.

Find instructions for submitting your own comment letter and more at CBAI's Basel III Resource Center.

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CBAI's Past Chairman Robin Loftus to Chair CFPB Community Bank Advisory Council

September 13, 2012

Robin Loftus, Executive Vice President and Chief Operating Officer of Security Bank, S.B., in Springfield, and Past Chairman of CBAI, will serve as chairman of the Consumer Financial Protection Bureau’s Community Bank Advisory Council.

The CFPB was created by the Dodd-Frank Wall Street Reform Act and supervises depository institutions and credit unions with total assets of more than $10 billion. As a result the Bureau does not have regular contact with institutions with assets of less than $10 billion. The Council is intended to ensure that the unique perspectives of community banks are shared with the Bureau. The Council will provide the CFPB with recommendations to influence its policy development, research, rulemaking, and engagement functions. The Council will convene public meetings, and members serve two year terms.

CBAI congratulates Robin Loftus on this important appointment.

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FASB Issues Community Bank Exemption

August 9, 2012

At the urging of CBAI and ICBA, the Financial Accounting Standards Board (FASB) decided that nonpublic entities will not have to disclose the fair value amounts for financial assets and liabilities measured at amortized cost.

In a comment letter to FASB the CBAI stated that the fair value accounting change applied to community banks is more likely to mislead financial statement users than to provide them with a clearer picture of financial condition. The change would also be expensive for community banks to implement by requiring new accounting policies and practices.

The community bank business model is to make loans and hold them to maturity not actively buying and selling loans. Fair value or mark-to-market determinations are more appropriate for trading assets not community bank loans.

Community bank loans have unique risk profiles and are not readily marketable making them difficult if not impossible to determine realistic valuations. These loans would certainly be at a below-par or liquidation value from the very day they are made if FASB imposed this requirement.

The impact of aggressively discounted loan values would be devastating to community bank capital and surely jeopardize the very existence of many community banks. Read CBAI Comment Letter

The FASB said that it would discuss at future meetings other disclosures (i.e. demand deposits) required of nonpublic entities.