Myriad headwinds might make it more difficult for community banks to comply with Basel III

Community banks are currently coping with a wide range of headwinds, and these challenges could potentially make it more difficult for them to meet the Basel III capital requirements.

These local lenders have been fiercely opposed to being affected by the regulatory regime, and lobbied government agencies in their efforts to be exempted from the U.S. interpretation of the capital guidelines set forth by the Basel Committee on Banking Supervision.

When these community banks were still given requirements to meet under Basel III, the Independent Community Banks of America – an industry organization – was quite vocal about its discontent, according to The Business Journals.

In addition to their concerns about meeting these requirements, these local lenders are coping with lackluster returns, The Los Angeles Times reported. During the second quarter of 2013, banks with less than $1 billion in assets generated an average return on assets of 0.7 percent. Lenders that did reach this minimum of $1 billion alternatively produced a ROE of 1.1 percent.

Since these community institutions are having a hard time generating strong financial results, the market participants are being shunned by investors.

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