Basel
ii in the United States of America
From the
Basel ii
Compliance Professionals Association (BCPA),
the largest association of Basel ii Professionals in the
world
Final Rule, USA: Risk-Based Capital Standards:
Advanced Capital Adequacy Framework — Basel II
Competitive Considerations
A
fundamental objective of the New Accord is to
strengthen
the soundness and stability of the international banking
system while maintaining sufficient consistency in
capital adequacy regulation to ensure that the New
Accord will not be a significant source of competitive
inequity among internationally active banks.
The
agencies support this objective and believe that it is
important to promote continual advancement of the risk
measurement and management practices of large and
internationally active banks.
While
all banks should work to enhance their risk management
practices, the advanced approaches and the systems
required to support their use may not be appropriate for
many banks from a cost-benefit point of view.
For a
number of banks, the agencies believe that the general
risk-based capital rules continue to provide a
reasonable alternative for regulatory risk-based capital
measurement purposes.
However, the agencies recognize that a bifurcated
risk-based capital framework inevitably
raises competitive considerations.
The
agencies have received comments on risk-based capital
proposals issued in the past several years
stating that for some portfolios, competitive inequities
would be worse under a bifurcated framework.
These
commenters expressed concern that banks operating under
the general risk-based capital rules would be at a
competitive disadvantage relative to banks applying the
advanced approaches
because the IRB approach would
likely result in lower risk-based capital requirements
for certain types of exposures.
The
agencies recognize the potential competitive inequities
associated with a bifurcated risk-based capital
framework.
As part of their effort to develop a
risk-based capital framework that minimizes competitive
inequities and is not disruptive to the banking sector,
the agencies issued the Basel IA proposal in December
2006.
The
Basel IA proposal included modifications to the general
risk-based capital rules to improve risk sensitivity and
to reduce potential competitive disparities between
domestic banks subject to the advanced approaches and
domestic banks not subject to the advanced approaches.
Recognizing that some banks might prefer not to incur
the additional regulatory burden of moving to modified
capital rules, the Basel IA proposal retained the
existing general risk-based capital rules and permitted
banks to opt in to the modified rules.
The
agencies extended the comment period for the advanced
approaches proposal to coincide with the
comment period on the Basel IA proposal so that
commenters would have an opportunity to analyze the
effects of the two proposals concurrently.
Seeking to minimize potential competitive inequities and
regulatory burden,
a number of commenters on both the
advanced approaches proposal and the Basel IA proposal
urged the agencies to adopt all of the approaches
included in the New Accord -- including the foundation
IRB and standardized approaches for credit risk and the
standardized and basic indicator approaches for
operational risk.
In
response to these comments,
the agencies have decided to
issue a new standardized proposal, which would replace
the Basel IA proposal for banks that do not apply the
advanced approaches.
The
standardized proposal would allow banks that are not
core banks to implement a standardized approach for
credit risk and an approach to operational risk
consistent with the New Accord.
Like
the Basel IA proposal, the standardized proposal will
retain the existing general risk-based capital rules for
those banks that do not wish to move to the new rules.
The
agencies expect to issue the standardized proposal in
the first quarter of 2008.
A
number of commenters expressed concern about
competitive
inequities among internationally active banks arising
from differences in implementation and application of
the New Accord by supervisory authorities in different
countries.
In
particular, some commenters asserted that the proposed
U.S. implementation would be different from
other
countries in a number of key areas, such as the
definition of default, and that these differences would
give rise to substantial implementation cost and burden.
Other
commenters continued to raise concern about the delayed
implementation schedule in the
United
States.
As
discussed in more detail throughout this preamble,
the
agencies have made a number of changes from the proposal
to conform the final rule more closely to the New
Accord.
These
changes should help minimize regulatory burden and
mitigate potential competitive inequities across
national jurisdictions.
In
addition, the BCBS has established an
Accord
Implementation Group, comprised of supervisors from
member countries, whose primary objectives are to work
through implementation issues, maintain a constructive
dialogue about implementation processes, and harmonize
approaches as much as possible within the range of
national discretion embedded in the New Accord.
The
BCBS also has established a Capital Interpretation Group
to foster consistency in applying the New Accord on an
ongoing basis.
The
agencies intend to participate fully in these groups to
ensure that issues relating to international
implementation and competitive effects are addressed.
While
supervisory judgment will play a critical role in the
evaluation of risk measurement and management practices
at individual banks, supervisors remain committed to and
have made significant progress toward developing
protocols and information-sharing arrangements that
should minimize burdens on banks
operating in multiple countries and ensure that
supervisory authorities are implementing the New Accord
as consistently as possible.
With
regard to implementation timing concerns, the agencies
believe that the transitional arrangements described in
preamble section III.A.2. below provide a prudent and
reasonable framework for moving to the advanced
approaches.
Where
international implementation differences affect an
individual bank, the agencies are working with the
bank
and appropriate national supervisory authorities to
ensure that implementation proceeds as efficiently as
possible.
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