Caruana says Basel II on track; US regulator unsure how US-EU differences will be resolved

LONDON, June 28 (Global Risk Regulator) – The global Basel II bank safety rules are on track for implementation on time in 2007 and 2008, according to the world’s top banking regulator as reported by Reuters news agency. But a US banking supervisor is unsure how differences between US and European regulators over the bank capital adequacy regime would be bridged, a separate report by the agency says.

Jaime Caruana, chairman of the international Basel Committee on Banking Supervision, the architect of the complex, risk-focused Basel II rules, told Reuters in an interview over the weekend that the Basel II accord was on-track despite legislative wrangling in Europe and rule-making hurdles in the US.

But George French, special advisor to the chairman of the US Federal Deposit Insurance Corp (FDIC), one of the four federal banking supervisory agencies in the US, told reporters in Washington yesterday that the US may seek to change the accord, Reuters reports. This would be to fix a problem unearthed in recent testing that showed Basel II would significantly reduce the amount of capital that US banks operating under the regime would be required to hold as a buffer to absorb potential surprise losses.

"Can we fix it? US regulators say: ‘Yes, we can.’ European regulators say: ‘No, we can't.’ And I don't know how that's going to play out," French said.

The US regulators announced on April 29 that they were delaying the publication of the details, in the form of a notice of proposed rulemaking, or NPR, of their Basel II implementation plans while they studied the results of the test, known as the fourth Basel II quantitative impact study, or QIS4. They had originally planned to issue the NPR by the middle of this year.

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