With agreement in most countries as to the implementation of Basel II, the USA appears to be no closer to consensus on the approaches, conditions and timing of its own implementation. Earlier this week, US regulators and representatives of trade associations appeared at a hearing of the powerful US Senate Committee to give an update on the implementation of Basel II in US banks.
The current proposals from the four relevant US regulators only permit the top 20 US banks to adopt Basel II and that these can only use the most advanced approaches to calculated regulatory capital. All other banks would have to adopt "Basel 1A", a US-specific adaptation of the current capital requirements. This was condemned by both the American Bankers Association (ABA) and America's Community Bankers (ACB). Jim Garnett of Citigroup, representing the ABA, said that the conservatism of the US regulators' proposals would reduce affordable credit, affect competition, discourage risk management and add to the costs of compliance. Kathleen Marinangel of the ACB argued that community banks should be allowed to adopt Basel II approaches if these were better suited to their business needs and risk profile.
At the hearing, Sheila Bair, chairman of the Federal Deposit Insurance Corporation (FDIC), one of the four regulators, argued for an additional capital constraint: a leverage ratio, being a minimum amount of capital required as a percentage of assets. This would be a percentage common to all banks and would be a fall-back should the risk capital approach result in a reduction of capital in the US system. However, this would require international adoption if US banks were not to be left at a competitive disadvantage and both the Federal Reserve and the Comptroller of the Currency, two of the four regulators, felt that it would be difficult to get the agreement of the Basel Committee at this late stage. In contrast, the Office of Thrift Supervision (OTS), the fourth regulator, said it would support the initiative and the FDIC stated they planned to raise this option at the next meeting of the Basel Committee.
The Basel 1A proposals are due to be released for consultation next month. The Basel II consultation period is already in progress, ending in January. The current expectation is that Basel II in the USA would be adopted in 2009, a year later than much of the rest of the world but Susan Schmidt Bies of the Federal Reserve felt that even this date would be difficult if further late modifications were to be made. The OTS commented that getting Basel II right was more important than timetables.
|
