On October 15, Comptroller of the Currency Thomas J. Curry spoke to bankers at the recently concluded American Bankers Association convention about the new capital proposals, and particularly about Basel III. His remarks, which were brief, are reprinted in their entirety below. They are worth reading, particularly as Comptroller Curry identified areas in which his agency may be more receptive to comments from community bankers. Those areas include accumulated other comprehensive income (AOCI), a concept which includes unrealized gains and losses on available for sale securities. While stating that both sides have compelling arguments, "[w]e recognize that the extra volatility that such an AOCI pass though would cause would be expensive and difficult to manage…."

Comptroller Curry also identified another area of concern where industry comments will be closely listened to—mortgages:

A second area where we will be reviewing comments very carefully involves mortgages – high volatility commercial real estate and residential mortgages. If ever there was an area where higher risk and higher capital should go together, this is it. This was a very clear lesson of the crisis. However, we recognize that the way we proposed to set minimum capital levels for these assets based on such measures as loan-to-value ratios, or singling out some balloon mortgages as especially risky, may impose a serious burden on many community banks and thrifts, particularly when applied to existing mortgages or if phased in too quickly. Here again, it is essential that we strike a balance that addresses risk while minimizing burden.

Two areas where the Comptroller may not be budging are the so-called weaker capital instruments, i.e. "those instruments that cannot be trusted to be there when they are most needed to absorb losses," and the idea of a capital buffer, as to which the Comptroller said, "if a bank or thrift gets close to its minimum capital ratios for whatever reason, shouldn’t it be thinking about limiting bonuses and dividend distributions?"

Comptroller Curry concluded by dangling the possibility of transition rules to spread out any additional burdens: "we will be taking a fresh look at the possible scope for transition arrangements, including the potential for grandfathering, to evaluate what we could do to lighten burden without compromising our two key principles of raising the quantity and quality of capital and setting minimum standards that generally require more capital for more risk."

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