Draft Basel Ia NPR is finally released

NEW YORK – The FDIC and the US Federal Reserve Board have published a draft interagency notice of proposed rulemaking (NPR) on Basel Ia. The NPR attempts to address concerns raised after the publication of the advance notice of proposed rulemaking (ANPR) in October 2005. Both were issued in response to industry and Congressional concerns that establishing a separate Basel II capital structure for large financial institutions and leaving the rest of the industry subject to Basel I standards would create significant competitive disadvantages for smaller US banks.

Regulators seem to have listened to their main concerns: "One very positive aspect of the draft NPR is the option that allows any bank to stay within the current system and opt out of Basel Ia," says Robert Strand, senior economist at the American Bankers Association.

A large number of the smaller banks will decide to opt out of Basel Ia and stick with the existing system, as the majority view is that they have plenty of capital and do not need to implement a risk-based system. And although