Resources for Basel II Capital Accord (Basel II)

New Rule Will Boost Banks, Fed Gov Says

money.cnn.com

A new rule governing how much cash and other assets large banks must hold in reserve will help protect the financial system from losses tied to risky loans, a Federal Reserve governor said Tuesday.

The Fed, along with three other banking regulatory agencies, approved the new regulation earlier this month. The rule implements international credit risk standards included in the Basel II framework, named after the Swiss city where the standards were developed.

The new rule will require banks to calculate specific risks for different loans within the same class of credit. For example, banks would be required to assign greater risk and reserve more capital for mortgage loans to borrowers with weak credit, compared to mortgage loans to borrowers with stronger credit.

Under current rules, banks generally must assign the same risk and reserve the same amount of capital for all mortgages.

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