Further delays hit US Basel II implementation

WASHINGTON, D.C. – The US process for Basel II was thrown into chaos yet again by the passage of a new law on the Federal Deposit Insurance Corporation that includes provision for a one-year study. The net effect of the legislation is said to be the delay of the publication of the notice of proposed rulemaking for Basel II until late 2006.

The new law requires the Comptroller General to report to the Committee on Banking, Housing, and Urban Affairs of the Senate and the Committee on Financial Services of the House of Representatives "on the potential impact on the financial system of the United States of the implementation of the new Basel Capital Accord (Basel II) and the proposed revisions to current reserve requirement regulations for non-Basel II banks".

The report will focus on whether there would be a reduction in capital requirements; "whether Basel II could hinder enforcement of prompt corrective action laws and regulations"; and "the potential implications any changes in capital requirements may have on the safety and soundness of the financial system in the United States".

The paper is also to report on the costs of Basel II, "the feasibility and appropriateness of Basel II's statistical models", and "the ability of regulators to oversee capital requirement operations of financial institutions".

Also under study is the ability of supervisors to attract and retain sufficient expertise, conduct the necessary oversight of capital and risk modelling.

The news, which will disappoint many large financial services firms in the US as well as financial services regulators from other jurisdictions, comes as the US regulators finally released the results of the fourth quantitative impact study. The results had originally been scheduled to be published in April 2005. OR&C

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