Magazine article Independent Banker

First, Do No Harm

Magazine article Independent Banker

First, Do No Harm

Article excerpt

The time-honored first line of the Hippocratic oath, "First, Do No Harm," comes to mind when one considers a very hotly debated issue within financial circles in Washington, D.C., today-the Basel II capital adequacy standards.

How this highly complex issue plays out will have enormous and far-reaching consequences for community banks. Though entangled in broad U.S. international economic relations, the issue strikes at the heart of competitive equality in the United States, and whether community banks will continue to have the ability to compete against the largest financial conglomerates in the nation.

Basel II regulations would establish a new capital regimen for the very largest banks, a capital regime that would allow the hundreds, and in some cases thousands, of branches and offices of these mega-banks to operate at much lower capital standards than the typical community bank operating across the street. Thus, a severe competitive inequity-particularly with respect to the treatment of mortgage, retail and small business loans-would be created.

It is difficult enough for community banks to compete against mega-bank branches or non-bank financial entities that never see an examiner, but to allow the adoption of a capital standard that favors the very largest banks over community banks is beyond the pale. Congressman Spencer Bachus (R-Ala.) and others on the House Financial Services Committee are right to be concerned.

Across the board, national financial public policy should treat all sector participants equitably and not give one special group an unfair competitive advantage over another. …

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