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Susan Schmidt Bies |
This week, in a farewell speech as a member of the Board of Directors of the US Federal Reserve, Susan Schmidt Bies worked hard to ease the passage of Basel II into US regulations, by declaring the conservative approach as the right way forward for US interests, and encouraged the suggestion of alternative approaches, methodologies, languages and frameworks.
Schmidt Bies, in her speech, 'An update on Basel II implementation in the United States', said "The Federal Reserve's main reason for pursuing Basel II is the growing inadequacy of current Basel I regulatory capital rules for the large, internationally active banks that are offering ever more complex and sophisticated products and services. We need a more risk-sensitive capital framework for these particular banks, and we believe Basel II is such a framework."
Basel II would promote risk-measurement and risk-management enhancements and improve market discipline, said Schmidt Bies, while giving supervisors a better framework for evaluating systemic risk, particularly through credit cycles.
Earlier in February, the US Government Accountability Office (GAO) issued a report which stated that Basel I was inadequate for large US banks, but that regulatory floors on capital requirements should be put in place for the transition period to Basel II. The report also raised concerns about levels of ambiguity in Basel II but concluded that "any further delay in the U.S. implementation of Basel II creates potential competitive disadvantages for US banks when they are compared with foreign banks."
Schmidt Bies is one of the US's main supporters of Basel II but is also aware that its extreme possibilities go too far for certain conservative advocates of more rigid rules on capital adequacy. She supported the US regulatory agencies' supervisory guidance and issued a note of caution on the discrepancies in national interpretations.
"On balance, the Federal Reserve believes that an appropriately conservative approach to capital adequacy serves the United States' interest in maintaining the safety, soundness, and resiliency of our banking system. However, we also recognize the impact that differences among countries can have and that it is worthwhile to minimize them whenever possible. As Chairman Bernanke noted this past fall, we intend to review and consider international differences before issuing a final Basel II rule."
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