In a speech on the increasing complexity and risk management needs of US community and regional banks, Ferguson noted that the risk-based Basel II bank capital adequacy Accord was designed mainly for the world’s large, complex, internationally active banks. The operations and business needs of such banks have developed beyond the intended reach of the current, and simpler, Basel I capital requirements, he said.
The complex Basel II Accord will determine from late 2006 how much of their assets major banks should set aside to guard against banking risks, including credit and market risks and, for the first time, operational risk.
But Basel regulators said while Basel II is intended in the first instance to apply to large, internationally active G10 banks, it is designed for banks of all sizes and nationalities. The European Commission, the ruling body of the European Union (EU), wants to introduce risk-based capital rules closely modelled on Basel II for all banks and investment firms in the 15-nation EU.
Over 100 countries have adopted the Basel I Accord, which dates from 1988. US regulators apply Basel I rules to all US banks.
Basel II is designed by the Basel Committee on Banking Supervision, the agency that in effect regulates international banking and which largely comprises banking supervisors from the Group of 10 (G10) leading economies.