The pending Basel III requirements could prove to be very costly for community banks.
While these smaller lending institutions have experienced rising deposits since the financial crisis started, their size could put them at greater risk when it comes time to comply with these new regulations, according to Bankrate.com.
Data provided by industry representative Independent Community Bankers of America (ICBA) reveals that the domestic deposits of banks holding less than $1 billion in assets have surged 7.5 percent between the end of 2011 and the end of 2008, the media outlet reports.
Many community banks could face challenges in terms of establishing the capital reserves needed to comply with the requirements, as many of these financial institutions lack the needed funds and could have a hard time getting them from outside sources, Chris Cole, ICBA senior vice president and senior regulatory counsel, told the news source.
He said that community banks frequently turn to shareholders to raise this type of capital, and one-third of these smaller lending institutions have a small group of these investors to work with, the media outlet reports.
Earlier in the month, a group of Arkansas lawmakers wrote a letter to federal regulators, imploring the officials to assess how adopting Basel III will impact these community banks.
◦ Asset Liability Management
◦ Portfolio Risk
◦ Sensitivities & Hedging
◦ Stress Testing & Scenario Analysis