Last Monday, 26th March, was the extended final date for comment on the US's Notification of Proposed Rulemaking (NPR) on the implementation of the New Basel Capital Accord in the USA. In their response, submitted at the last minute, the Independent Community Bankers of America (ICBA) came down heavily against an implementation that would conform with the approaches taken by the rest of the world and supported the more cautious approach favoured by certain parts of the US regulatory and statutory community.
The US has four concerned regulators, and two of these, the Federal Deposit Insurance Corporation (FDIC) and the Office of Thrift Supervision (OTS), are holding out for a fail-safe "leverage capital ratio" where capital would be measured as a fixed percentage of revenues and would be levied wherever the flexible Basel II-calculated capital gave too low a result. The ICBA "commends the banking agencies for proposing to retain the leverage ratio as part of Basel II. ICBA strongly believes that the retention of the leverage ratio is essential to maintaining the safety and soundness of our banking system and is a needed complement to the risk-sensitive Basel II framework that is based only on internal bank inputs and risk parameters."
ICBA is also supporting the US proposal for transitional floors, as well as possibly recalibrating the whole of Basel II if, during the three-year transition period, there is a 10% or greater decline in aggregate minimum risk-based capital of the Basel II banks compared to calculations under the existing Basel I rules.
Last month FDIC Chairman Sheila Bair expressed serious concerns about recent discussions about international competition and Basel II, and the ICBA supported her statement that the regulators should never consider implementing Basel simply because "a few banks claim that they need lower capital requirements to compete internationally."
Finally, despite all the above, the ICBA still believes that Basel II will place community banks at a competitive disadvantage. This must all make very worrying reading for those large US banks, who could end up being forced to adopt the highest levels of capital approaches but being prevented from benefiting from any savings.
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