US aims to keep to Basel II timetable

BRUSSELS, June 15 – US Treasury Secretary John Snow told European Union lawmakers yesterday the US wants to keep to the agreed timetables for introducing the international Basel II bank safety rules, Reuters news agency reports.

"We asked on Basel and there was confirmation they (the United States) will also try to keep to the timeframe," EU parliamentarian Ieke van den Burg told Reuters after Snow addressed a group of EU lawmakers during a visit to Brussels.

The US timetable, which envisages applying the complex Basel II capital adequacy rules to the nation’s largest banks from January 2008, has been called into question since the April-29 US decision to postpone issuing detailed proposals on implementing the rules.

Banking analysts say that if US and European timetables for implementing the risk-focused rules were to get out of line it could create competitive advantages for those large international banks operating under Basel II, as well as possible home country-host country regulatory problems.
Basel-II banks could enjoy lower capital charges to guard against potential losses than would international competitors still waiting to move from the current, and simpler, Basel I capital rules that date from 1988.
Last week a US Federal Reserve Board spokesman told Global Risk Regulator that the US federal banking supervisory agencies still hope to issue their implementation plans in the autumn in the form of a notice of proposed rulemaking, or NPR.

The Fed spokesman was commenting on earlier remarks by Federal Reserve Board governor Susan Schmidt Bies who had indicated the agencies would have a clearer idea in late July or early August of when the delayed NPR might be published.

The four agencies – the Fed, the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency and the Office of Thrift Supervision – said when postponing the issue of the NPR that they needed more time to study the results of a fourth quantitative impact study (QIS4) into the possible effects of Basel II on US banks. They had previously intended to issue the NPR by the middle of this year.

QIS4 showed the Basel II regime could result in unexpectedly, and for some regulators worryingly, large declines in the capital that banks would be required to have available to absorb potential losses.

The US regulators envisage the Basel II rules applying to a handful of the country’s largest banks, estimated at 20 or so by analysts and representing the bulk of the nation’s banking assets. These banks will only be allowed to use the most advanced approaches to measuring their credit and operational risks and determining the minimum amount of capital need to guard against them.
The rest of the US banking system, comprising thousands of regional and smaller banks, will remain under the Basel I rules.

The EU by contrast intends applying Basel II to all banks and investment firms in the 25-nation bloc in two stages, starting in January 2007, via its Capital Requirements Directive (CRD), now going through the EU Parliament.
The CRD timetable follows broadly the staggered implementation recommended by the Basel Committee on Banking Supervision, the architect of the Basel II framework. The Committee, which comprises top banking supervisors from North America, Europe and Japan, recommends that banks using simpler and intermediate risk measurement approaches should do so from end-2006, while banks using advanced approaches should so from end-2007.

Just over 100 countries have said they plan to adopt the Basel II rules, either in line with the Basel Committee’s timetable or later. The aim of the rules is to bolster the solvency of the world’s banking system by getting banks to align their capital more accurately to the risks they face.
Separately yesterday, the Fed’s Bies reiterated yet again some of themes she has stressed in speeches and Congressional testimony since the decision to postpone publication of the NPR.

She told the North Carolina Bankers Association’s annual convention that the Basel I rules as they apply in the US would be revised if it appeared there would be unintended competitive advantages and disadvantages arising from the adoption of Basel II by a limited number of big banks.
And Bies repeated the importance of maintaining the US Prompt Corrective Action regime within the Basel II context.

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