HFS Subcommittee Discusses Capital Requirements
AT TODAY’S HOUSE FINANCIAL SERVICES SUBCOMMITTEE HEARING, lawmakers discussed new capital requirements under the Dodd-Frank Act with industry stakeholders. The hearing focused on H.R. 3128, sponsored by Rep. Michael Grimm (R-N.Y.), which would amend the Dodd-Frank Act with regard to the retroactive date for provisions under the Collins Amendment.
Question and Answer
Rep. James Renacci (R-Ohio) asked the panelists how banks would seek to replace the Tier 1 capital that would be lost by the phase out of Trust Preferred Securities (TRUPS).
Daniel McCardell, Senior Vice President and Head of Regulatory Affairs for the Clearing House, said the Association’s member banks are working toward full compliance with the Dodd-Frank Act and noted how firms are looking toward new forms of capital, such as common equity, to meet the new requirements. Richard Ward, Chief Regulatory Officer of Emigrant Bank, added that any difficult compliance timeframes for complying with the TRUPS phase out may potentially result in an impairment of lending as his firm seeks to raise capital.
Rep. Carolyn Maloney (D-N.Y.) asked how a change in the grandfathered status of firms as it relates to the Collins Amendment would affect banks.
McCardell noted that the core issues with the Collins Amendments is the three year transition schedule and the 10 year transition schedule for the TRUPS phase out under the Basel III framework. He said these requirements must be reconciled.
Testimony
In his opening statement, Richard Wald focused his testimony on H.R. 3128. He noted that the Dodd-Frank Act eliminated Tier 1 capital treatment for TRUPS for all institutions with $15 billion or more in assets, however, TRUPS issued by institutions with less than $15 billion in assets (as of December 31, 2009, which was moved retroactively from May 19, 2010 to December 31, 2009) were allowed to continue counting TRUPS as Tier 1 capital. Wald said the cut off date of December 31, 2009 is inconsistent with the other “cut-off” dates in the Collins Amendments and would prevent Emigrant from using TRUPS as Tier 1 Capital, costing his bank $300 million to comply and significantly reducing Emigrant’s ability to lend to the community it serves.
In his opening statement, Daniel McCardell expressed concern that some of the capital-related regulatory reforms could “ultimately work at cross purposes to the goals of protecting the financial system against systemic meltdowns” while enabling the financial system to “play its necessary role in fostering economic and job growth.” He said that the policy concern that gave rise to the Collins Amendment’s Basel I-based minimum capital floor – namely, that the Basel II approach could require too little capital – has been “separately and more appropriately addressed by other regulatory reforms.” McCardell said, if implemented, the Collins Amendment would add “needless” complexity to capital planning and would place U.S. institutions at a competitive disadvantage compared to their international peers. In closing, McCardell urged members to consider the trade-offs between higher capital standards and the risk of reducing economic and job growth.
For testimony and a webcast of the hearing, please click here.
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AT TODAY’S HOUSE FINANCIAL SERVICES SUBCOMMITTEE HEARING, lawmakers discussed new capital requirements under the Dodd-Frank Act with industry stakeholders. The hearing focused on H.R. 3128, sponsored by Rep. Michael Grimm (R-N.Y.), which would amend the Dodd-Frank Act with regard to the retroactive date for provisions under the Collins Amendment.
Question and Answer
Rep. James Renacci (R-Ohio) asked the panelists how banks would seek to replace the Tier 1 capital that would be lost by the phase out of Trust Preferred Securities (TRUPS).
Daniel McCardell, Senior Vice President and Head of Regulatory Affairs for the Clearing House, said the Association’s member banks are working toward full compliance with the Dodd-Frank Act and noted how firms are looking toward new forms of capital, such as common equity, to meet the new requirements. Richard Ward, Chief Regulatory Officer of Emigrant Bank, added that any difficult compliance timeframes for complying with the TRUPS phase out may potentially result in an impairment of lending as his firm seeks to raise capital.
Rep. Carolyn Maloney (D-N.Y.) asked how a change in the grandfathered status of firms as it relates to the Collins Amendment would affect banks.
McCardell noted that the core issues with the Collins Amendments is the three year transition schedule and the 10 year transition schedule for the TRUPS phase out under the Basel III framework. He said these requirements must be reconciled.
Testimony
In his opening statement, Richard Wald focused his testimony on H.R. 3128. He noted that the Dodd-Frank Act eliminated Tier 1 capital treatment for TRUPS for all institutions with $15 billion or more in assets, however, TRUPS issued by institutions with less than $15 billion in assets (as of December 31, 2009, which was moved retroactively from May 19, 2010 to December 31, 2009) were allowed to continue counting TRUPS as Tier 1 capital. Wald said the cut off date of December 31, 2009 is inconsistent with the other “cut-off” dates in the Collins Amendments and would prevent Emigrant from using TRUPS as Tier 1 Capital, costing his bank $300 million to comply and significantly reducing Emigrant’s ability to lend to the community it serves.
In his opening statement, Daniel McCardell expressed concern that some of the capital-related regulatory reforms could “ultimately work at cross purposes to the goals of protecting the financial system against systemic meltdowns” while enabling the financial system to “play its necessary role in fostering economic and job growth.” He said that the policy concern that gave rise to the Collins Amendment’s Basel I-based minimum capital floor – namely, that the Basel II approach could require too little capital – has been “separately and more appropriately addressed by other regulatory reforms.” McCardell said, if implemented, the Collins Amendment would add “needless” complexity to capital planning and would place U.S. institutions at a competitive disadvantage compared to their international peers. In closing, McCardell urged members to consider the trade-offs between higher capital standards and the risk of reducing economic and job growth.
For testimony and a webcast of the hearing, please click here.