Washington regulators give ground on Basel II options

14 September 2006

In a major turnaround after years of defending a more restrictive stance, US regulators agreed in early September to seek comment on whether US banks should be allowed the option of a simpler Basel II bank capital regime, the lead story in the latest issue of Global Risk Regulator newsletter says.

The four federal banking supervisory agencies involved in developing the controversial US Basel II programme, responding to a growing chorus of demands from the banking industry over the summer, have asked for comment on whether US banks operating under the Basel II bank safety rules should be allowed the option of using simpler approaches to measuring their risks.

Until now, the regulators have insisted that the small number of very large US banks expected to adopt the complex, risk-focused Basel II capital adequacy rules, should use only the most advanced approaches to assessing their credit and operational risks and calculating the minimum capital they need to absorb and survive shock losses.

The second lead story says it’s now virtually certain that the credit rating industry in the US will soon be subject to a rigorous new regulatory regime, despite fierce rearguard opposition in the ratings industry ahead of the October recess for mid-term elections.

The effect of this law will be to give the Securities and Exchange Commission (SEC), the leading regulator for the US securities markets, statutory powers to make rules governing the behaviour and standards of credit rating agencies.

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