New US NPR questions

The US notice of proposed rulemaking (NPR) has finally been published.


As the editor of OpRisk & Compliance, it's been pretty easy for me to be critical of the US approach to the entire Basel II process over the past 18 months. I'm not going to list all the problems and deficiencies this regulatory initiative has encountered. If you have been keeping up with these pages, you know of what I speak.

You might also think that, given we are now all faced with a 400-page, question-riddled document that regulators are encouraging banks to submit comprehensive and detailed responses on, I might continue to be critical. Why couldn't they have just given us a clear set of rules and let us get on with ticking our boxes, you might be asking yourself.

Ah! But this is where I think the US regulators have really got something right. As I listened to the various regulators at our OpRisk USA event – held in New York at the end of March – talk about the various questions about operational risk they'd inserted in the document, I thought, "Well done." The problems they have raised are good ones. They deserve to be addressed by the industry in full. Also, regulators at the Federal Reserve Bank of Boston are working on several papers that analyse the results of the loss data collection exercise, which will also raise key questions for the industry about the types of distribution curves they use, and whether or not the percentages assigned to various business lines under the standardised approach are accurate.

There are still hurdles to be overcome. You might remember that in last month's issue there was a great deal of concern over a new study that will be performed by the US Government Accountability Office this year on Basel II, looking at the costs of the exercise as well as the feasibility of the models employed in Basel II. The study – introduced into a piece of legislation on the Federal Deposit Insurance Corporation by Senator Richard Shelby of Alabama – could yet unhinge the Basel II process in the US.

In the UK, the Financial Services Authority issued its own 'agenda raising' document in March – a feedback statement on visits it had undertaken to AMA banks over the past few months. Of course, readers of OpRisk & Compliance had a preview of this in the March edition. Essentially, the document told banks they needed to do more, faster, in order to get themselves sufficiently prepared for Basel II, and raised a variety of important issues. So industry executives on both sides of the Atlantic have a lot to chew on...

Have a good month!

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