The surprise results of the test, which showed that the complex, risk-focused Basel II capital adequacy rules could produce worrying declines in the minimum capital banks need to absorb losses, prompted US regulators in late-April to delay the issue of their detailed plans for implementing Basel II. They said they needed more time to study to the results. The decision has raised questions about whether the US can keep to its Basel II timetable, which envisages applying the rules to the countryâs very largest banks from January, 2008.
Roger Cole, the US Federal Reserve Boardâs senior associate director for banking supervision, said today the format of the test, known as the fourth quantitative impact study (QIS4), had been flexible. As a result, some large diversified banks had taken a conservative approach to QIS4, while others were less constrained, Cole told the Risk Capital 2005 conference in Nice. And some of the past loss data supporting the capital calculations related to a benign economic period when loss experience would have been moderate, he noted.
However, Cole reiterated the message of a "very important sentence" in the April-29 joint statement by the Fed and its fellow federal banking supervisory agencies.
This was that it is necessary to establish whether the QIS4 results reflect differences in risk, reveal limitations in QIS4, show variations in the stages of bank implementation efforts (particularly in relation to data availability), and/or suggest the need for adjustments to the Basel II framework.