Fed Governor: the US is not an outlier in regards to Basel II implementation

“While the US appears to be a bit of an outlier with respect to its implementation timetable, other countries are grappling with their own challenges, too…while some observers may be critical of the slower pace of US agencies, we believe that our deliberate pace is necessary to ensure that the effects of Basel II are indeed understood,” Bies said to the risk capital forum in Paris.

Bies addressed the possibility that such a delay could lead to home-host issues. Citing the fact that all national regulators have adjusted Basel II to meet the specific needs of their respective countries, Bies said “the US agencies have exercised national discretion and have tailored the Basel II framework to fit the US banking system and US financial environment.” Not only does this apply to obligating only the largest and internationally-active banks to implement, but to the different schedule the US regulators plan to use. “Implementation of a more gradual transition timetable is justified in part by a recognition that banks need more time to prepare – and that we a supervisors need more time to analyse transition information and ensure that there are no unintended consequences,” Bies said.

Bies stated that similarities between Quantitative Impact Study (QIS) four and five prompted the need for caution, allowing enough time to ensure that banks’ estimates of Loss Given Default (LGD) accurately reflect down-turn conditions. “The Basel committee’s release on QIS5 also stated that methodologies and systems for LGD calculation are still being developed and that, as a result, some of the effects of downturns may have been underestimated,” Bies said.

Regarding home-host issues, Bies said that while current multi-jurisdiction banking practices highlight some areas where problems may occur, US regulators are meeting with individual banks to alleviate potential complications. “Many of the issues are institution-specific, and all the US banking agencies encourage regular meetings between bankers and supervisors to identify specific concerns,” said Bies, who promised further individual consultations with affected firms.

Click here to see Bies’ speech in full.

BaselAlert.com