Bernanke says no big capital reduction wanted with Basel II

WASHINGTON, February 16 (Global Risk Regulator) – The US Federal Reserve Board “is on the same page” as US lawmakers in not wanting to see a substantial reduction in bank capital as a result of applying the international Basel II bank safety rules, Fed chairman Ben Bernanke said today.

Bernanke, who was sworn in as the new Fed chairman earlier this month, was replying to questions on the Fed’s monetary policy report to Congress, issued yesterday, from members of the Senate’s banking committee. Some committee members are highly sceptical about the controversial and complex risk-based Basel II capital adequacy rules which have had a troubled reception in the US. They will apply only to a handful of the nation’s largest and most complex banks with smaller banks fearing they may be put at a competitive disadvantage as a result.

The Fed and its fellow federal banking supervisory agencies are planning a slow phase-in of the Basel II rules with plenty of consultation, Bernanke said in reply to the committee’s chairman, Republican Richard Shelby. Shelby noted that several witnesses at the banking committee’s Basel II hearings in November claimed that the new rules would result in substantial declines in the capital required to protect banks against surprise losses.

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