It’s Finally Here – BASEL III First Quarter 2015 Call Report Changes for Community Banks

The ink on the Basel Committee on Banking Supervision’s BASEL II accords had barely dried when the financial crisis of 2007-2009 erupted. Policymakers and regulators quickly realized that the regulatory capital requirements memorialized in the BASEL II accords would not have had a significant impact in preventing the financial crisis nor have added significantly greater stability to financial institutions to withstand a similar crisis. Policymakers and regulators began to look past BASEL II and onto a more rigorous regulatory capital framework that they hoped would forestall future financial catastrophes like the one experienced in 2007-2009.

On July, 2, 2013, after a lengthy regulatory comment process, the Federal Reserve Board (FRB) approved a final rule adopting the Basel Committee on Banking Supervision’s revised capital framework (“BASEL III”) into the United States banking regulatory structure.  The Federal Deposit Insurance Corporation (FDIC) introduced an Interim Final Rule on BASEL III on July 9, 2013, and subsequently adopted the Final Rule on BASEL III on April 8, 2014.

The most significant impact as a result of BASEL III adoption relates to changes to the calculation of regulatory capital and risk-weighted assets. These changes result in considerably altered Call Report Schedules RC-R Part I (Regulatory Capital Components and Ratios) and Part II (Risk-Weighted Assets) and are effective for all financial institutions beginning with the March 31, 2015 Call Report.

Community banks generally are defined for BASEL III purposes as less complex financial institutions not subject to the market risk or advanced approaches risk based capital rule. The discussion that follows highlights the major changes that community banks should keep in mind while preparing their March 31, 2015, Call Report.

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