Sunday, March 04, 2007

Basel II Implementation in the United States Possibly Delayed another Year

US Banks May Get Another Year to Implement Basel II Accord, Fed Official Says
Basel II – Federal Reserve Happy with US Conservative Approach

Basel II, the revised standards for capital adequacy standards for banks promulgated by the Bank for International Settlements (the BIS), has not received a warm welcome in the United States. The new accord, which is more risk-sensitive than its predecessor, Basel I, will regulate the amount of capital a bank must set aside to cover risks. Since the BIS published the revised guidelines in June 2006, only a handful of nations have implemented Basel II, with the United States being the most hesitant nation.

One of Basel II’s biggest supporters in the United States is Susan Schmidt Bies, a member of the Board of Directors of the U.S. Federal Reserve (the Fed). During her farewell speech to the Fed (Bies announced that she will step down from the Fed next month), Bies responded to banks and Congress members who asked U.S. regulators to delay Basel II implementation. Due to the concerns some have raised regarding the necessity of Basel II and the fact that the new guidelines may lead to disadvantages for smaller banks, Bies stated that the Fed is “carefully considering the request that implementation of the market risk proposals be pushed back one year to January 2009.”

Bies’ announcement of another possible delay in Basel II implementation comes on the heels of the U.S. Government Accountability Office (the GAO) issuing a report noting that “any further delay in the U.S. implementation of Basel II creates potential competitive disadvantages for U.S. banks when they are compared with foreign banks.”

Question: In our global environment, should the U.S. ignore the possible risks Basel II poses for smaller U.S. banks and stick to the previous implementation timetable in order to maintain competitiveness with foreign banks who already have implemented Basel II?

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