March 30, 2006
Notice of proposed rulemaking to implement Basel II risk-based capital requirements in the United States for large, internationally active banking organizations
For immediate release
An interagency notice of proposed rulemaking (NPR) that would implement Basel II risk-based capital requirements in the United States for large, internationally active banking organizations was made public Thursday by the Federal Reserve Board.
The proposed rule would require the largest internationally active banks to enhance the measurement and management of their risks, including credit risk and operational risk. It also would require these banks to have rigorous processes for assessing overall capital adequacy in relation to their total risk profile and to publicly disclose information regarding their risk profile and capital adequacy.
"Given the increasing complexity of the activities at our largest banks, and the related risks of those activities, I fully support efforts to develop a more appropriately risk-sensitive capital framework for those institutions," said Board Chairman Ben S. Bernanke. "The current Basel I framework has become increasingly inadequate for capturing the risks at large, complex U.S. banking organizations."
The NPR details the agencies' plan for implementing the Basel Committee on Banking Supervision's new capital accord (Basel II). For banks that meet qualifying criteria, the NPR would replace U.S. rules implementing the Basel Capital Accord of 1988 (Basel I).
The NPR builds on an advance notice of proposed rulemaking (ANPR) issued by the agencies in August 2003. It includes a number of prudential safeguards, including the requirement that a bank satisfactorily complete a four-quarter parallel run period, beginning no sooner than January 1, 2008, before operating under the Basel II framework. Following a successful parallel run, a bank would have to progress through three transitional periods, each of at least one year, during which there would be temporary floors on potential declines in risk-based capital requirements. A bank would need approval from its primary federal supervisor to move to each of the transitional floors, and at the end of the transition period to move to full Basel II.
"As a central bank and a supervisor of banks and bank and financial holding companies, the Federal Reserve is committed to ensuring that the Basel II framework delivers a strong and risk-sensitive base of capital," said Governor Susan S. Bies. "That is why the proposal contains safeguards to ensure strong capital levels during and after the transition to Basel II, and why we will remain vigilant in monitoring Basel II's impact on an ongoing basis."
The Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency (OCC) and the Office of Thrift Supervision (OTS) also are considering the NPR. The Board authorized the staff to publish the NPR in the Federal Register for public comment after the other agencies complete their approval processes. For the OCC and OTS, that includes review by the Office of Management and Budget (OMB).