Challenges facing Basel II, says US central banker
PHILADELPHIA - Difficult challenges lie ahead in implementing the Basel II upgrade of international rules for bank safety, a top US central banker said in early January.
"Basel II is not your grandfather's bank regulatory scheme; it is an approach that draws on the most sophisticated financial methodologies as well as on extensive research on banking and bank supervision," US Federal Reserve Board governor Ben Bernanke said.
"As with most other policy issues, getting the myriad details right will be critical to the success of this new regulatory regime," he told the annual meeting in Philadelphia of the American Economic Association, a body which aims to encourage economic research.
The general design of Basel II owes a great deal to research conducted both by academics and central banks, Bernanke noted. His theme was the transition from academic to policymaker that he underwent on joining the Fed's Board of Governors in 2002 after a distinguished career as an academic. Bernanke said the intellectual challenges of central banking are as rewarding as those of academia. The only drawback is that he now has to wear a suit to work.
The new capital accord, which was created by the senior banking supervisors from North America, Europe and Japan who make up the Basel Committee on Banking Supervision, "may well be the most economically sophisticated regulation scheme ever devised," Bernanke said.
His remarks came as both banking supervisors and big banks in the US step up the pace of their preparations for introducing the complex Basel II rules, which are designed to get the banks to align their capital more accurately to the risks they face, from January 2008 (see page 1).
