The finalisation of the essential Notice of Proposed Rulemaking (NPR), required before Basel II can be implemented in the US, seems to be slipping yet again – whilst some large US banks are appealing that the requirement, that they adopt the most advanced approaches on capital requirements, is at odds with the imposed limitations on whatever reductions in capital that can be achieved.
Earlier this year, end-June had been given as the date by which the NPR would be completed and, until recently, early August had been the hoped for date. According to Global Risk Regulator, staff at the Federal Deposit Insurance Corporation, one of the regulating bodies, have now indicated that the September 5th board meeting is the earliest they can expect this to get on the agenda for approval. This would mean the required comment period not completing until late January 2007. There is also speculation that there are still differences of opinion between the various US regulators and that this is being exacerbated by the recent calls to remove the insistence that the US's Basel II complying banks must adopt the most advanced approaches available to the calculation of their regulatory capital requirements.
Four US banks, Citigroup, JPM Chase, Wachovia and Washington Mutual have approached the US Federal Reserve to request that they be allowed to adopt the simpler approaches to capital calculation as the benefits, regulatory capital reductions, made possible by these approaches have been largely diluted by the planned imposition of limits to the amount of capital reduction. Other regions, for example Europe, are also planning limits to capital reductions, but these are largely to ensure safe embedding of the new approaches, and they last less time and are less restrictive than the US equivalents. These US restrictions were imposed for the additional reason of avoiding any misbalance with small US banks, who will adopt an updated version of the old Basel I Accord, called Basel IA.
The American Bankers Association, together with several US state banking supervisors, has also supported these requests, commenting that there is little benefit to large US banks and that Basel II is in danger of becoming simply a compliance exercise.
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