Markets - US regulators in crossfire on Basel II and Sarbanes-Oxley

Charlie McCreevy

US regulators are insisting that the top 20 US banks alone adopt Basel II and that these are limited to adopting the highest approaches to calculating capital requirements. Various US banks have objected to this, and they have now been supported by the European Union, as voiced by Charlie McCreevy, European Commissioner for Internal Market and Services, who has sent a letter to the US federal banking supervisory agencies, arguing that they allow American banks adopting Basel II to be allowed to use the simpler approaches, as permitted for European banks. This would put the American banks on the same footing as their European competitors.

McCreevy also argued that the US adopt the more sensitive principles-based approach to regulation, rather that the US’s current dogmatic rules-based approach.

This preference was also echoed by Henry Paulson, US Treasury Secretary, when, at a Washington conference organised by the US Treasury, he called for a principles-based approach to regulation – "We must rise above a rules-based mindset that asks, 'Is this legal?' and adopt a more principles-based approach that asks, 'Is this right?'", Paulson said. He also advocated that a rigorous cost benefit analysis be performed by the regulators for each new regulation – something that the UK's FSA is already obliged to do.

However, surprisingly, not all private sector participants at the conference supported Paulson's views. Warren Buffet, whilst acknowledging that his company paid $24 million in accounting fees last year, did not think that the American legal system was compatible with principles-based regulation, and Arthus Levitt, ex-SEC Chairman and a director at Bloomberg, thought that adopting such an approach would leave American investors with less protection.