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As expected the Federal Deposit Insurance Corporation (FDIC), on Monday, became the fourth and final US regulator to ratify the implementation of the “Final Rule” implementing the Advanced Approaches of the Basel II Capital Accord. They emphasised that only the Advanced Approaches would be used - but left a loophole for those advocating the Standardised Approaches for their banks.
However, each federal banking agency has retained the discretion to exempt banks from the requirement to use these approaches, or to allow others to use them on an opt-in basis. The agencies are also working on a proposed rule that would provide a standardised approach as an option for the banks not subject to the Advanced Approaches.
"It is very important for smaller banks that want to implement the standardized approach, to have enough lead time to do this on a timeline parallel to the advanced approach. It is also important to note that the NPR (Notification of Proposed Rulemaking) will include a question for comment about whether the large banks, that we are today requiring to use the advanced approach, should be able to use the standardized approach instead," said FDIC Chairman Sheila S. Bair.
The US regulations are consistent with other nations’ interpretation of Basel II. However the phased implementation is very different. Whereas most nations have adopted the BIS-recommended two tiers, each of a year in duration, the US is introducing tiers of variable duration which require banks to achieve certain standards before being allowed to proceed.
"We have agreed, by regulation, not to allow any bank to exit its transitional risk-based capital floors unless and until the agencies publish a study giving the new rules a clean bill of health, or unless identified defects are remedied. If any agency allows its banks to exit the floors in a way that departs from this consensus approach, the rule requires that agency to publish a report explaining its reasoning," Chairman Bair said.
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