US regulators to publish TSA plans for Basel II

Proposals for implementing the standardised approach (TSA) for Basel II are due to be published soon

BOSTON, MA – US regulators will soon release their plans for introducing Basel II’s standardised approach (TSA), said Randall S Kroszner, board member of the US Federal Reserve, at the Boston Fed’s Basel II conference last week.

Only the largest, internationally operating banks are catered for by the US Basel II roadmap to the advanced measurement approach (AMA). Expanding the requirement of Basel II to cover a far higher number of TSA banks would be a significant development for US regulators, who have been reluctant to press ahead with the capital requirements legislated in the European Union through the Capital Requirements Directive.

“The proposed US standardised approach will be based on the approach of the same name in the international Basel II framework, modified in some areas to suit the US banking system,” said Kroszner. “The standardised approach would enhance risk sensitivity by increasing the number of risk-weight categories to which a bank would assign credit exposures. It also would increase capital requirements for certain off-balance sheet exposures, such as liquidity commitments, and allow for broader recognition of credit risk mitigants, such as collateral and guarantees. In addition, the approach will include a specific capital requirement for operational risk.”

Kroszner added that the TSA proposal would help increase risk sensitivity, foster competitive equity and provide a risk-based capital framework for banks not suited to the AMA.