Fifth Third CFO Calls for ‘Empirical Study’ of Basel III Impact

In a ""testimony"":http://financialservices.house.gov/uploadedfiles/hhrg-112-ba15-ba04-wstate-dposton-20121129.pdf before two House subcommittees, ""Fifth Third Bancorp"":https://www.53.com/site CFO Daniel Poston (speaking on behalf of the ""American Bankers Association"":http://www.aba.com/Pages/default.aspx) urged the withdrawal of Basel III's ""standardized approach"" in light of the burdens it would bring to banks and to the overall economy.

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Speaking before the Subcommittee on Financial Institutions & Consumer Credit and the Subcommittee on Insurance, Housing and Community Opportunity, Poston called the proposed rules ""overly complex"" and ""not appropriate for banks of any size.""

In his testimony, Poston said that most banks have no problem with the capital requirements and noted that capital levels are already historically high. The problem, he said, lies in the ""arbitrary--and excessive--risk weights that will hurt banks, our customers, and the U.S. economy overall.""

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He specifically pointed to proposals that could shrink the mortgage market and further tighten credit.

""Some proposals specifically target many safe and sound mortgage products and services for harsh capital treatment, driving up costs and compelling banks to reduce--or even stop--their involvement in mortgage lending,"" he said. ""In addition, the proposals require a significant amount of very granular data on a mortgage-by-mortgage basis. Most banks do not have the required data in their systems to apply this complex mortgage treatment as the proposed risk attribution framework is novel.""

While federal agencies have recognized the industry's concern by delaying the implementation deadline, Poston said the extension ""is not the answer to this problem.""

Rather, he suggested policymakers should pull away from the standardized approach and conduct empirical studies on proposed rules to ensure that they are fair to all banks. Until that time, Basel I rules should remain in place for all banks.

""The industry supports a more risk-sensitive system of generally applicable rules, one that works well and applies broadly, that identifies risks where and as they are, and that treats similar risks with similar capital treatment,"" Poston said. ""There are nearly 7,000 banks in the United States, the vast majority of which are community banks; therefore any general risk-weights must work for these banks, or else they don't work.""