US plans to offset Basel II effects on small banks, says Greenspan
SAN ANTONIO, TEXAS, March 11 - US banking supervisors will propose this summer some options for simple revisions to current capital rules where this would mitigate any unintended disadvantages for small and regional US banks created by the Basel II bank safety pact, US Federal Reserve Board chairman Alan Greenspan said today.
"Moreover, as in the past, if competitive or other issues later arise that we cannot now adequately foresee, the Federal Reserve would make appropriate further adjustment to the rules," Greenspan told the national convention of the Independent Community Bankers of America via video link to San Antonio, Texas.
US regulators intend a "bifurcated" policy in respect of the risk-focused Basel II upgrade of international capital adequacy rules devised by the Basel Committee on Banking Supervision, the body of senior supervisors from North America, Europe and Japan that in effect regulates international banking.
Under this policy some 20 or so of the largest US banks, representing the bulk of the nation's banking assets, will adopt the Basel II rules in January, 2008. These banks will have to use only the most advanced Basel II approaches to measuring their credit and operational risks. The rest of the US banking system, comprising thousands of smaller banks, will remain under the current, and much simpler, Basel I capital rules that date from 1988.
Greenspan noted today that many community and regional banks are uneasy that they may be left at a competitive disadvantage after the adoption of the Basel II rules by their larger rivals.
US supervisors have in the past signalled their readiness to adjust the Basel I rules to protect non-Basel II US banks from unintended problems.
The Fed has been studying the competitive implications of Basel II. Some of the studies have been published and others will be published in coming weeks, Greenspan said.
"For some business lines, the studies have suggested that competitive impacts are not likely, while for others, such as some types of small business loans, it does appear that unintended competitive advantages and disadvantages might be created," he added.
The four federal banking regulatory agencies - the Fed, the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation and the Office of Thrift Supervision -are planning to issue a notice of proposed rulemaking on Basel II by mid-2005. The aim is to issue the final rules on Basel II by the second quarter of 2006, in time for implementation in 2008.
(Greenspan's speech: www.federalreserve.gov)
David Keefe (dkeefe@globalriskregulator.com)
