| Following last week's news that the European Parliament had given the green light to adopt Basel II via the EU Capital Requirements Directive (CRD), the four US Federal banking agencies have moved to announce a revised plan for implementing Basel II. Their announcement also comes just days after Federal Reserve Governor, Sandra Schmidt Bies told a meeting of international bankers that the US was "still several years away from full implementation".
The US agencies had previously planned to issue their Notice of Proposed Rulemaking (NPR) this summer, but postponed plans in late April pending additional analysis of the results of the fourth Basel Committee Quantitative Impact Study (QIS4). The study produced unexpected results in the US with particular concern focused on the significant reduction in regulatory capital requirements from the previous study. The agencies have said they now expect a US Basel II proposal to be made available in Q1 2006.
With the progress made on the Capital Requirements Directive, EU regulators will welcome the news, but with the US agencies saying that they "anticipate there will be further revisions to the US Basel II-based capital rules", there will still be concerns in the EU about how much the US may depart from the Basel framework. The revised "Basel II-based” NPR will cover domestic implementation of the new Accord, but the agencies say they also plan to include "additional prudential safeguards" to address the concerns identified in QIS4.
The US safeguards will include a revised implementation timeline with parallel running starting in January 2008 and a minimum three-year transition period with limits on any calculated reduction in risk-based capital requirements. The transition period will be closely monitored by the agencies and any decision to remove the limits on an institution will only be made on an individual basis.
The full text of the US agencies joint press statement on Basel II is available on the US Federal Reserve Board website.
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