Paul Sarbanes, the senior Democrat on the US Senate's banking committee, warned last week that Congress could still stop the Basel II accord on banking regulation from being implemented in the US. He was questioning the necessity of the accord in the US following problems encountered with the testing of the rules on US banks and a consequent decision to delay the accord's implementation for one year. The International Institute for Finance, the primary lobbying group for the world's largest banks, expressed its displeasure at the delay.
The test, the fourth quantitative impact study, shows that bank capital of the largest US banks would fall by about 20 per cent on average following implementation of Basel II, but with a wide difference in impact on individual banks. The unexpected variation in amount of capital between banks reflects different assumptions in the measurement of risk. Since low bank capital is a competitive advantage, the implications of the study are likely to be a race to the bottom in the quality of risk assessment. Basel II gives banks considerable leeway in how they measure risk.
See full Article (paid subscription required).