Resources for Basel II Capital Accord (Basel II)

Basel II Agreement Reached, Basel IA Dropped

www.banktech.com

The federal banking regulators on July 20 finally reached an agreement regarding the implementation of Basel II in the United States. The agreement will lead to the finalization of a rule implementing the advanced approaches for computing large, international banks' risk-based capital requirements.

According to a joint release from the agencies, including the Federal Reserve, FDIC, OTS and OTC, the agreement retains the transitional floor periods of the most recent notice for proposed rulemaking and is fairly consistent with most already-in-place international approaches. After a parallel run in 2008, the transition floors provide for maximum cumulative reduction of 5 percent in the first year, 10 percent in the second year, and 15 percent in the third year.

While the final rule will only directly apply to the largest 11 U.S. banks, the rule's reverberations will be felt throughout the banking industry.

The regulators dropped Basel IA, which many non-core banks clung to as a potential life raft to stay competitively afloat. But the regulators quickly ensured the nation's smaller banks that a standardized approach for all non-core banks would be made available before the first transition period begins for the core banks on before the first transitional period in 2009.

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