Basel IA must weigh sensitivity against burden, says Fed’s Bies

NAPLES, Florida, April 11 – As US regulators develop new rules for the thousands of US banks that won’t be adopting the complex Basel II safety regime, they will analyse carefully the trade-off between risk sensitivity and the greater burden placed on banks, a top supervisor said yesterday.

“As you are aware, this is not necessarily the easiest balance to find,” US Federal Reserve Board governor Susan Schmidt Bies told a Naples, Florida risk management forum organised by America’s Community Bankers, a leading trade body representing smaller US banks.

The proposals are still at an early stage to produce a more risk-sensitive US version, dubbed Basel IA, of the current Basel I bank capital adequacy rules that date from 1988, Bies said. The federal banking supervisory agencies hope to have a notice of proposed rulemaking, or NPR, on Basel IA “by summer”, she added. The aim is to have overlapping comment periods for the Basel IA NPR and the Basel II NPR, a draft of which was approved and released by the Fed on March 30. The delayed and revised Basel II NPR sets out the agencies’ final proposals for applying Basel II from January 2009 to a handful of America’s largest banks, expected to number 20 or so but comprising the bulk of the nation’s banking assets.

“We are also mindful that amendments to Basel I should not be too complex or too burdensome for the multitude of smaller banks to which the revised rules will apply,” Bies said.

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