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Revision of the International Risk-Basel Capital Accord

Basel II

ABA continues to support introduction of the international Basel II Framework in the United States. We support the fundamental principles of the Framework, to promote international consistency of banking standards, robust risk management for banks, and regulatory capital that is sensitive to risk exposures. ABA's Wayne Abernathy said that finalization of the Pillar 1 rules in the U.S. is a "major step forward in the implementation of Basel II [that] will help promote the strong global competitiveness of American banks. Aligning U.S. capital regulations with the international Basel II accord reduces potential competitive inequities with foreign banks already applying this standard." However, he noted that "While finalization of the rules ... is welcome news to bankers, it will also be important to look at the details to see how fully the regulators have fulfilled their intent to align the U.S. version with the international accord."

ABA has submitted written comments to the regulators recommending that:

  • A menu of capital rules should be available to suit the diversity of the U.S. banking industry, including the current system ("Basel I") and the Standardized and Advanced Approaches from the international Basel II accord.
  • The U.S. Basel II rules must be harmonized with the international accord to achieve the intended goals of the Basel exercise.
  • The regulators should proceed with finalization of the Basel II rules and allow banking firms to commence parallel runs to avoid further growth of development expenses.
  • Banks should be permitted to qualify for and adopt the Basel II Advanced Approaches for some portfolios or business lines while continuing to use less sophisticated approaches for others.

There has been significant concern as to the potential competitive effects on the large majority of U.S. banks that will not adopt the Advanced Approaches of Basel II. In response, on July 20, the regulators agreed to develop and implement the Standardized Approaches out of the international agreement, to be available by 2009. The OCC and OTS announced on Nov. 1 that a proposal for the Standardized Approaches would be out in first quarter 2008.

U.S. Banking Agency Proposal and Statements

International Agreement

The International Capital Accord, adopted by the Committee on Banking Supervision of the Bank for International Settlements in 1988, established the current risk-based capital standards for banking firms. In 1999, after a decade of experience with the Accord, the Committee initiated a thorough review with the intention of a complete overhaul.

The Committee's revised Accord is based on three "Pillars." The First Pillar is a revised risk-based capital ratio requirement that uses independent rating agency risk assessments and banks' internal risk models. The Second Pillar includes standards for official supervisory review of capital adequacy. The Third Pillar pursues market discipline to supplement supervisory review.

The string of proposal from the Basel Committee was as follows:

The Basel Committee's Standardized Approach is detailed in the Basel Committee's final Basel II rule, pages 26-47.

ABA Statements

Hearings, Statements and Studies

Please contact Rob Strand for more information.