By Emily Stephenson
WASHINGTON (Reuters) - A Federal Reserve official on Thursday will call on regulators to write simpler capital rules, saying delays in finishing up the requirements could hurt banks' balance sheets.
Fed Governor Sarah Bloom Raskin said in remarks prepared for a speech at Ohio Bankers Day in Columbus that regulators should reduce market uncertainty by writing rules to implement the international capital accord known as Basel III.
"I am concerned that significant, further delays could add to uncertainty and could detract from the maintenance of strong capital levels," Raskin said.
Capital requirements were considered one of the key components of reforms in response to the 2007-2009 financial crisis, but bank regulators are months behind in finalizing rules to implement the Basel agreement in the United States.
Critics have argued that the rules rely too much on complex models that determine how much equity capital banks need based on the riskiness of their assets. Small banks have said the rules could be particularly onerous for them.
Raskin, who did not comment on the outlook for monetary policy or the economy in her remarks, said she expects "meaningful modifications" when regulators release the final version of the new capital requirements.
She said regulators can require more and better-quality capital without making the rules too complicated for community banks to comply. Assigning risk weights is imprecise and could create new problems if they turn out to underestimate the riskiness of certain assets, Raskin said.
"We risk drowning banks in a capital adequacy system that is so complex that it both misses the mark of addressing meaningful emerging risks and piles regulatory costs on banks with no public benefit," she said.
While model-based approaches could work for large, international banks, they "are clearly inappropriate for, and will not apply to, community banks," Raskin said.
She said an effective system would combine risk weights with a leverage ratio, or ratio of capital compared with total assets, and would count on bank supervisors to also monitor firms' risks.
(Reporting By Emily Stephenson; Editing by Steve Orlofsky)