IRA Comments on Proposed Rule Making on US Risk-Based Capital Guidelines

January 10, 2006

Institutional Risk Analytics today filed its comments on the advance notice of proposed rulemaking on possible modifications to the risk-based capital standards for all domestic banks, bank holding companies and savings associations in the US ([Docket No. 05-16], RIN 1557-AC95). You may request copies of all of the comments that the OCC has received by contacting the OCC's Public Information Room.

In its comments, IRA takes issue with the idea that smaller banks are disadvantaged under Basel II: "We reject the notion that implementation of Basel II creates competitive inequities between large and small institutions. To the extent that the ANPR relies upon the assumption that such inequities could or would exist under Basel II, the rule-making process is likely to be badly flawed - even more so than it is already."

IRA also notes that because of Basel II, bifurcated bank regulatory frameworks are proliferating worldwide as each nation and federation moves forward with the Basel process, even as the US hesitates.

"Basel II is no longer a theory that can be kept in a genie bottle in Basel, Switzerland," notes IRA. "The tide is already moving. The United States needs to find a formula for its own version of banking market bifurcation that will enable it to participate as improved risk based capital measures unfold over the next fifty years."

IRA also opines on the performance of the regulators in managing the Basel II process, asking whether the US regulators afforded opponents too great an opportunity to sidetrack the process. "The apparent lack of preparation of the OCC, Fed and other regulators has allowed the opponents of Basel II to get away with specious, nonsensical arguments in lobbying members of Congress," IRA notes.

IRA asserts that a close examination of the facts, including the bank performance data maintained by the US regulators themselves, shows that the few regional US banks acquired by foreign institutions over the past decade have generally been modest performers, which nonetheless demanded significant purchase premiums. Better managed banks, on the other hand, seem to have little to fear from foreign acquirers.

"Since only a handful of the largest non-US banks seem willing or able, either operationally or technically, to attain Advanced IRB status under Basel II, we are at a loss to identify just which large foreign banks opponents of the Basel II proposal had in mind when they leveled complaints against the new capital accord several months ago, IRA notes."

IRA is a custom designer of risk analysis and valuation tools for credit officers, auditors, corporate lenders, regulators and other financial decision makers. The IRA Bank Monitor is the first commercially available Basel II benchmarking system for US banks, using "as filed" data and calculations taken from US bank regulatory agencies.

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