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WASHINGTON-The banking trade associations lauded the federal banking regulators for their recent unveiling of an advance notice of proposed rulemaking on Basel Ia. Basel Ia is the less complicated capital standards that will apply to smaller banks as Basel II is being updated for the largest institutions. NCUA has said it would base its risk-based capital reform initiative, currently included in the Credit Union Regulatory Improvements Act (H.R. 2317), on the Basel modifications. “Our hope is that Basel Ia will allow banks to modernize risk capital with limited regulatory burden while minimizing any competitive advantage of Basel II banks and other financial service companies,” American Bankers Association Executive Director for Financial Institution Policy Wayne Abernathy commented. “We encourage banks and regulators to carefully consider the balance between the burdens of information collection and capital calculation, and the increased risk sensitivity of the capital adequacy standard.” He added that he was pleased to see that Basel Ia did not get bogged down as regulators have come under fire for the complexities of Basel II. “We are particularly pleased that the proposal would more closely align capital requirements with the risk levels for many of the key products of community banks, including residential mortgage loans and small business loans,” Robert R. Davis, executive vice president and managing director of government relations for America’s Community Bankers, said. “Overall, the changes discussed in the advance notice of proposed rulemaking appear to be designed to more closely relate capital requirements to the risk of individual assets. ACB also supports permitting banks to remain subject to Basel I as an option to limit new regulatory costs. But ACB will suggest optional risk-modeling approaches that may be suitable for more sophisticated community banks.” The Independent Community Bankers of America expressed concern “about the competitive disparities between Basel I and Basel II and has recommended additional risk categories for Basel I to enhance its risk-sensitivity and to align capital requirements with risk levels.” The trade association suggested allowing some banks to remain under Basel I, as did ACB. In issuing the advance notice of proposed rulemaking, Comptroller of the Currency John C. Dugan stated, “It is almost a certainty that the level of risk sensitivity we hope to achieve under Basel II is not possible in a simpler risk-based capital regime. However, we need to be very mindful of competitive equity issues, and we will endeavor to reduce gaps between the two frameworks as much as possible given our overarching priority to ensure that both frameworks move in the direction of greater risk sensitivity.” This rule is also being considered by the Federal Reserve, the Federal Deposit Insurance Corporation, and the Office of Thrift Supervision. [email protected]

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