Basel II – American state regulators want their say in capital rules

The four US federal regulators have been struggling to come to a common understanding on the implementation of Basel II. Now the supervisors in the state banks are objecting to being excluded from these deliberations.

In an open letter published on May 29th they complained that they are being left out of the federal decision-making process on how to implement the international Basel II bank accord.

In this letter - to the federal regulatory bodies, FDIC, OFT, Federal Reserve and Comptroller of the Currency, plus the US Treasury - the President of the Conference of State Bank Supervisors (CSBS), Neil Milner, said that whilst the federal banking agencies and the Treasury were working towards an agreement on a final Basel II rule, these deliberations were taking place without the involvement of any state bank regulator. "There is no greater issue than the rules which govern capital to protect the banking system, provide the foundation for economic development, and protect our citizens. Therefore, we respectfully request a state bank regulator be included in all deliberations on these issues."

This is not the first time the CSBS has complained. In March, in another open letter to the four federal regulators, the CSBS said "If and when the Basel II capital framework is implemented, it will mark the first time that the U.S. has had different capital rules for different institutions. Before we implement multiple capital rules for US institutions, it is vital to understand the impact of imposing separate capital frameworks."

The CSBS oppose the lowering of minimum capital requirements from the current levels to those permissible under the generally accepted global interpretations of Basel II. In this they will have an ally in the FDIC and the OFT who have expressed similar misgivings.

But can the USA maintain its global position if it operates to different levels of capitalisation regulations? And will the global investment banks, Wall Street based in culture if not in practice, tolerate the overheads of having to work to two sets of standards, particularly when those standards require global capital calculations?