NPR on Basel II expected in late 2005, says OCC

In his April 1 testimony to the full Senate Committee on Financial Services, Hawke said the NPR would be preceded by a fourth quantitative impact study (QIS4) and an operational risk benchmarking review.

The benchmarking review of operational risk at a number of institutions commenced at the beginning of this year, while QIS4 will be conducted in the third and fourth quarters of 2004.

“These projects and discussions will help in the third key step in Basel II implementation – developing a joint NPR that will set forth the proposed regulatory text for Basel II in the US,” Hawke said.

QIS4 would be significantly different from the Basel Committee’s earlier quantitative studies. “QIS4 will not only be conducted against the background of a more fully articulated proposal, but will include a more prominent supervisory role to ensure greater reliability and consistency in survey results than has occurred in the past.

“We continue to believe that we cannot responsibly adopt final rules implementing Basel II until we have both determined with a high degree of reliability what the impact will be on the capital of our banks, and we have made the judgment that the impact is acceptable and conducive to the maintenance of a safe and sound banking system in the US,” said Hawke.

He said the agencies believed the results of QIS4 would be more useful than any data currently available to determine the magnitude of Basel II on bank capital and potential competitive iniquities, as well as determining ultimately what to do about them.

On its part, OCC would prepare an “economic analysis” of the Basel II rules, which would include a description of the need for the rules and an explanation of how they will meet the need; an assessment of the benefits anticipated from the rules together with a quantification of those benefits; and an assessment of the costs anticipated from the rules with a quantification of the costs.

The analysis would also assess the potentially effective and feasible alternatives to the planned regulation, and an explanation why the planned regulatory action is preferable to the identified potential alternatives.

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