WASHINGTON—Congresswoman Shelley Moore Capito, R-W.Va., Chairman of the Subcommittee on Financial Institutions and Consumer Credit, delivered the following opening remarks at today’s joint hearing entitled “Examining the Impact of the Proposed Rules to Implement Basel III Capital Standards.”

Remarks as prepared for delivery:

This hearing will come to order.  I would like to thank Chairman Biggert, Ranking Member Maloney, and Ranking Member Guitierrez for their cooperation in holding this joint hearing on capital requirements for financial institutions.    We have two panels of very diverse witnesses who will present various concerns about the proposed rule to implement the Basel III capital requirements.   Because this is a joint hearing with two large witness panels I ask members to not exceed their five minutes allotted for questioning.   I know there is a lot of member interest in this hearing and I want to ensure all members have the opportunity to ask their questions. 

In early June of this year the Federal Reserve Board, the Office of the Comptroller of the Currency, and the Federal Deposit Insurance Corporation jointly proposed three rules to revise risk-based capital requirements to make them consistent with the Basel III accords.   Like many of my colleagues, I’ve heard a lot of concern from financial institutions of all sizes about the effect implementation of these capital requirements will have on the health of financial institutions, their ability to lend, and the subsequent effect on the economy.  

Although there was near unanimous expectation that these capital requirements would apply to the nation’s largest financial institutions, many were surprised when the U.S. federal agencies applied standards that were designed for large complex institutions to regional and community banks as well. 

Higher capital requirements for large complex financial institutions are entirely appropriate.   Over the last six months we’ve seen first-hand that a well-capitalized financial institution can sustain a significant loss because they are holding sufficient capital.   Furthermore, higher capital requirements may help prevent our nation’s largest financial institutions from becoming even more systemic.   The Basel III accords were designed to address many of the issues posed by large, complex, systemic financial institutions. 

It is less clear whether these specific capital requirements are appropriate for regional and community banks.   The United States is very fortunate to be served by a highly diverse financial system.   The diversity in our system is evident in the different banks that are testifying before us today.   Pendleton Community Bank is a $260 million asset bank located in rural West Virginia; Fifth Third Bancorp is a $117 billion regional bank serving 12 states; and Citigroup is a nearly $2 trillion bank serving clients across the globe.   These institutions have unique business models designed to serve different types of customers.   The one size fits all approach to regulatory capital in the proposed rules does not take into consideration the diversity of our nation’s financial system and the unique challenges faced by different sized institutions.  Furthermore, as we will learn from several witnesses today, the proposed rules will apply to insurance companies that own thrifts.  Again, there needs to be significant flexibility in the way these rules are finalized that properly takes into account the difference in their business models. 

I know that the regulatory agencies are currently reviewing thousands of comments on the proposed rules and I thank them diligently reviewing the comments.   We can all agree that higher capital requirements are in important tool in ensuring we have a safe and sound financial system; however, it is my hope that today’s hearing will help demonstrate to the regulatory agencies the importance of appropriately tailoring these requirements to the different sizes of financial institutions in the United States.