Local impact of Basel III unclear

While the recent adoption of new capital reserve and leverage guidelines for U.S. banks offered lenders a bit of regulatory clarity this month, North Bay bankers said time will tell how those rules play out amid the bevy of new regulations that followed the recent financial crisis.

Named for the international rulemaking summit for financial regulators in Basel, Switzerland, the so-called Basel III rules are the third iteration of an international regulatory framework designed to limit highly leveraged and otherwise risky practices by the world's banks. The rules, approved on an interim basis by the Federal Reserve Board and other U.S. regulators this month, define the amount of capital that a bank must maintain as a cushion against losses.

Adopting Basel III was considered a major goal for lawmakers in the wake of the recent financial crises and seen as a way to rein in the risky lending practices that some argue pushed the U.S. financial system to the brink of collapse.

Yet as community banks saw themselves subject to some of the same requirements as what regulators call the largest "systematically significant" institutions, industry comment over the past year inspired a number of tweaks meant to limit the impact on those "small, noncomplex community banking organizations."Rules for small banks start in 2015

Bankers in the North Bay acknowledged the benefit of those provisions, which will begin phasing in for smaller institutions in 2015.

[caption id="attachment_77295" align="alignright" width="180"] Greg Jahn[/caption]

"For us, this is pretty good news," said Greg Jahn, chief financial officer at Exchange Bank, of the impact of those revisions for community banks in general. The Santa Rosa-based lender reported $1.69 billion in assets as of June 30.

Yet Basel III is only the latest development in a regulatory landscape that continues to take shape after the worst of the recession, contributing to an evolutionary period for the regulatory environment that banks face throughout the country, bankers said.

The specifics of the Basel III rules involve provisions like the so-called "risk weight" applied to various bank assets. Riskier loans and investments carry greater "weight" and require more allocations towards minimum capital reserves. The rule also defines tiers of assets, cash or otherwise, that count in varying degrees toward the reserve.

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