World bank regulators agreed on new rules over the weekend to triple how much money the biggest banks have to have available to reduce the chances for financial disaster.
But what does that mean? The new rules, known as the Basel III Accords, apply to the biggest banks in the world -- those that pose “systemic risk” to the economy. They will be phased in over the next nine years. But the rules, long term, could have ramifications for smaller banks, too.
Q. What impact will Basel III have on Georgia’s banks?
A. "We will have to wait for the federal regulators to write the new capital rules, geared off of the new Basel standards, to see exactly how community banks will be impacted," said Steve Bridges, executive director of legislative and regulatory affairs for the Community Bankers Association of Georgia. "That being said, it is clear that the federal regulators are likely to raise minimum capital standards for all banks."
Q. What impact will Basel III have on consumers?
A. "That remains to be seen as this gets phased in during the coming years," said Joe Brannen, president and CEO of the Georgia Bankers Association. "The challenge for regulators throughout implementation and application of the new standards will be to strike the proper balance between strengthening reserves while not overly constricting the ability of banks to fund and sustain economic growth through reasonable lending. Banks will have to reserve more to guard against losses, which simply means the bank can't deploy that capital in ways that fund loans. (Currently, 222 of the 283 Georgia-based banks meet or exceed the Basel III Tier-1 capital threshold, according to the GBA.)
Q. Will it curtail credit?
A. "I think that there will be some banks who will make that claim in an attempt to soften the regulatory implementation of the standard,” said Peter Eisemann, a finance professor at Georgia State University. “However, this will be more posturing than reality. Actually, the large banks got what they wanted by stretching the deadline to 2019. The governments were afraid to be tougher because they didn't want to have a negative effect on credit in this economic environment.”
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