Basel II NPR to be delayed

WASHINGTON, DC – US federal banking agencies may revisit the Basel II implementation timeline, after additional analysis of the quantitative impact study four (QIS4) results. The additional analysis will delay the release of the Basel II Notice of Proposed Rulemaking (NPR) beyond the original mid-2005 schedule.

The QIS4 submissions evidence material reductions in the aggregate minimum required capital for the QIS4 participant population, 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," the agencies said in a statement dated April 29.

The agencies received QIS4 submissions from participating institutions in January and have completed a preliminary analysis. They were due to release the NPR at mid-year 2005, but have delayed it to "better assess the results of the recently completed QIS4". They will issue the NPR at the earliest possible date after considering issues raised by the QIS4 results.

A hearing will also be held in the House of Representatives on May 11, titled Basel II – Capital Changes in the US Banking System and the Results of the Impact Study. Congress wants to get increasingly involved in the new regulations, after intensive industry lobbying focused on the op risk charge and potential competitive implications.

Indeed, just three weeks prior to the agency announcement, the Office of the Comptroller of the Currency’s Kevin Bailey said the NPR would be delivered in June or July at the annual OpRiskUSA conference in New York in early April. Bailey, who is the deputy comptroller for capital and regulatory policy, said: "At the same time as the NPR for Basel II, US agencies will be also be publishing an advance notice of proposed rulemaking (ANPR) describing potential revisions to the existing Basel I capital adequacy regulations for those institutions not adopting Basel II. It is our clear intent – especially for institutions who are considering opting into Basel II – to show what exactly their options are."

However, Bailey denied that the new framework for Basel I banks would be a "mini Basel II. It is a process that is going to be building on the existing Basel I base of capital adequacy regulations," he said. "We will not have a mini-IRB, and there will not be an op risk charge in this proposal."

Bailey also said revised supervisory guidance for the advanced measurement approach would be published in 2005, and the final rules will be put in place in mid-year 2006. The impact that the delay of the NPR would have on these other target dates was unclear at press time. OpRisk