FDIC approves Basel II

Capital floors will be kept until the agencies prove the new rules can work, says Bair

WASHINGTON, DC – All four US regulators have now approved the final rule implementing the advanced approaches of the Basel II capital accord, with the Federal Deposit Insurance Corporation (FDIC) adding its stamp to the rule yesterday.

The FDIC has been one the sharpest critics of the Basel accord and has lobbied hard to ensure the leverage ratio is kept in place. Sheila Bair, chairman of the FDIC and a long-time advocate of the leverage ratio, says: “We have agreed, by regulation, not to allow any bank to exit its transitional risk-based capital floors unless and until the agencies publish a study giving the new rules a clean bill of health, or unless identified defects are remedied. If any agency allows its banks to exit the floors in a way that departs from this consensus approach, the rule requires that agency to publish a report explaining its reasoning.”

Bair is also a proponent of ensuring smaller US bank are not unduly disadvantaged by the larger banks’ adoption of the advanced approaches. The agencies are continuing to work on a proposed rule that would provide a standardised approach for smaller and community banks.

“It is very important for smaller banks that want to implement the standardised approach to have enough lead time to do this on a timeline parallel to the advanced approach. It is also important to note that the NPR [Notice of Proposed Rulemaking] will include a question for comment about whether the large banks, which we are today requiring to use the advanced approach, should be able to use the standardised approach instead,” Bair says.