Fed seeks public comment on Basel II

The Federal Reserve has issued an interagency advance notice of proposed rulemaking (ANPR) seeking public comment on the implementation of the new Basel Accord in the US.

The Basel Capital Accord is a framework for capital adequacy standards for large, internationally active banks and the basis for the risk-based capital adequacy standards now in place for all US banks and bank holding companies.

The new Accord, Basel II, which is being developed by the Basel Committee on Banking Supervision, builds on and, for certain banks, replaces the Basel capital Accord of 1988.

The ANPR presents an overview of the proposed implementation of the advanced approaches of Basel II in determining capital requirements for credit risk and operational risk. The ANPR has been developed by the Federal Reserve Board, the Comptroller of the Currency, the Federal Deposit Insurance Corporation and the Office of the Thrift Supervision.

The agencies hope that the public comments will refine the Basel framework as the Basel Committee completes its work on the New Accord.

Vice-chairman of the Federal Reserve Board Roger Ferguson said: “The proposed Accord would be dramatically more risk sensitive and transparent. It would thus contribute to a higher degree of market discipline and would contribute to a safer and sounder banking system here and abroad.”

About 20 US banks are expected to adopt Basel II, accounting for two-thirds of all US bank assets and 99% of US bank assets held internationally.

In a similar development, the Fed has also sought public comment on draft interagency supervisory guidance on internal-ratings based systems for corporate credits and draft guidance on advanced measurement approaches (AMA) for measuring operational risk.

The draft supervisory guidance on internal ratings-based systems for corporate credits describes the essential components and characteristics of an acceptable advanced internal-ratings based framework, including rating assignment, validation, quantification, data maintenance and oversight and control mechanisms.

The draft supervisory guidance on the AMA for operational risk sets forth expectations for banking organisations for calculating operational risk exposure and outlines requirements for governance, measurement, monitoring and control of operational risk.