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America’s Community Bankers has told the federal banking regulators that it generally supports the basic direction of proposed changes in risk-based capital standards for recourse, direct credit substitutes and securitized transactions. The approach is already used by the Office of Thrift Supervision.

ACB applauded the agencies for proposing uniform definitions of recourse, direct credit substitutes and associated terms. The definitions "will take a major step in achieving consistency of treatment across exposures from originations, purchases and from providing credit enhancements to equivalent credit risks," ACB said.

"This will. . .automatically ensure that there is no unintended advantage accorded by the regulatory capital regime to larger institutions," ACB said. "The lower capital support that can be achieved by securitization under the existing rules assists those larger entities that are active in this business to the detriment" of community banks, ACB added.

But ACB pointed out that the proposed rule may go too far in the other direction. The "revised treatment often overshoots the total capital mark, though by less than the current treatment may undershoot it," ACB said. ACB asked the regulators to explain any inconsistencies between the on-balance sheet and off-balance sheet treatment of an asset.

The comment letter to the agencies is linked.