Banking & Capital Markets

U.S. Regulators Delay Basel II Requirements

The agencies will take additional time to examine effects on the minimum requirements for risk-based capital.
Stephen TaubMay 9, 2005

The four U.S. banking agencies announced that they will delay the publication of new rules related to the Basel II Capital Accord.

The Basel Committee on Banking Supervision has been working for a number of years to refine the guidelines that govern how much capital banks in its 13 member countries, including the United States, must hold in reserve. The committee implemented its original Basel Capital Accord (Basel I) in 1988. A year and a half ago we examined how Basel II could pare costs for some types of borrowing, and ultimately give companies more flexibility in funding their capital structure.

Last week, the four federal agencies — the Office of the Comptroller of the Currency, the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, and the Office of Thrift Supervision — said that rather than publish their rules this summer, they would take additional time to better assess the results of a recently completed quantitative impact study (QIS4).

The agencies said the QIS4 process was designed to provide a better understanding of how the implementation of Basel II might affect minimum required risk-based capital within the U.S. banking industry overall, at consolidated U.S. institutions, and for specific portfolios.

QIS4 submissions, noted the agencies, showed evidence of material reductions in the aggregate minimum required capital for banks and significant dispersion of results across institutions and portfolio types. “Additional work is necessary to determine whether these results reflect differences in risk, reveal limitations of QIS4, identify variations in the stages of bank implementation efforts (particularly related to data availability), and/or suggest the need for adjustments to the Basel II Framework,” they added.