US Congress Basel II bill is put on hold, for now

WASHINGTON, DC -- The bill authored by the House of Representative’s Financial Services Committee, which was designed to transfer control of the Basel II negotiation process from US regulators to Congress, has been shelved for now, say regulatory and legislative sources.

The bill, the United States Financial Policy Committee for Fair Capital Standards Act (HR 2043), was introduced by legislators after a February hearing on Basel II in the House that highlighted the differences of opinion among the various US regulators, including the Federal Reserve, the Office of the Comptroller of the Currency (OCC), and the Federal Deposit Insurance Corporation (FDIC). The bill would have established a financial policy committee designed to forge unified positions for US negotiations with the Basel Committee on Banking Supervision. The secretary of the Treasury would have overseen the committee, and it would have had to report regularly to Congress (see Operational Risk, August 2003, page 24). The bill passed an initial mark-up in the House’s Financial Services Committee in July.

"I think what was driving them initially was that there was a potentially dramatic change in a very important banking regulation that was about to occur, and they didn’t know a lot about it," says one regulatory source from the FDIC in Washington. "I think some of the initial reaction we saw was driven by the fact that they felt that they had not been kept adequately in the loop by the US regulators. I think that was an important lesson for us to learn, on the regulatory side, in terms of making sure they understand what is happening in the overseas negotiations."

The regulator added, "I think the legislation… is currently sitting on a sidetrack right now. They are letting the comment period play out. I understand that several members of Congress are going to submit comments to us as a result of that. I would say that right now the legislation is on hold." Among the top concerns, the regulator acknowledged, was the role of operational risk in the new framework.

A spokesman for the House Financial Services committee confirms the status of the bill, saying that the "committee is not scheduled to mark-up the Basel II bill in Full Committee as of yet. Given the lack of legislative days on the calendar before the year-end, it is unlikely that a mark-up will happen before next year. We are, or course, constantly working with the regulators to ensure that they are aware of our concerns." OpRisk

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