US Fed issues standardised approaches NPR

The Fed joins the FDIC in approving the proposed rule for the Basel II standardised framework.

WASHINGTON DC – The Federal Reserve Board has joined with the Federal Deposit Insurance Corporation (FDIC) in issuing the notice of proposed rulemaking (NPR) on the Basel II standardised framework for public comment.

Like the advanced approaches, the standardised rule also seeks to more closely align regulatory capital requirements with institutions' risk and encourage improvements in risk management.

“The increased risk sensitivity of the standardised framework is aimed at both enhancing safety and soundness for the wide range of institutions that will not be adopting the advanced approaches of Basel II and fostering competitive equity for these institutions,” says Randall Kroszner, governor of the Federal Reserve. “Recognising the diversity of banking organisations in the United States, we want to provide these banks with the option of using a more updated capital framework without unduly increasing regulatory burden.”

In a statement, chairman of the Board of Governors Ben Bernanke, said: “The standardised framework provides an alternative way to determine regulatory capital requirements that is more risk sensitive than the current Basel I-based rules, yet is less complex than the advanced approaches final rule. It addresses certain competitive equity issues raised by the industry in light of the implementation of the advanced approaches final rule in the United States. At the same time, its optional nature recognises that the current rules remain appropriate for many banking organisations. I am pleased that the proposed framework calls for increased disclosure and transparency and encourages sound risk management.”

The Office of the Comptroller of the Currency (OCC) and the Office of Thrift Supervision (OTS) are also considering the NPR. The Fed has authorised the staff to publish the NPR in the Federal Register for public comment after the other agencies complete their approval processes. For the OCC and OTS, that includes a review by the Office of Management and Budget. Comments will be accepted for 90 days from the date of publication in the Federal Register.

Wayne Abernathy, executive vice-president, financial institutions policy and regulatory affairs, ABA, welcomed the release of the standardised approach: “The proposed standard would add to the menu of capital requirement alternatives available to match the varieties in complexity and operations of our nation’s diverse banking industry. Large, complex banking firms are moving towards adopting the advanced capital standards adopted last year. Many other banks may be interested in the proposed intermediate program, which calls for strong capital without the complexity of the Basel II advanced approaches. Yet others could choose to continue with the current, more basic capital standards. In essence, this menu approach means all banks will have strong capital standards, but measured by capital rules more closely matched to the complexity of their operations.”