Some large U.S. banks could justify carrying less than 1% risk-based capital against one- to four-family mortgages, according to a new study on an international RBC standard that is under development.The Federal Deposit Insurance Corp. study shows that the 20-odd banks that are expected to adopt the Basel II RBC standard could see their RBC requirements fall from the current U.S. requirement of 4% RBC to between 0.75% and 2.02%, based on loan-loss assumptions. It would be "perfectly defensible" under the Basel II plan to make very low loss assumptions on 1-4s and home equity loans, said George French of the FDIC. Banks "would have the data sets that support capital of less than 1%," he said. Previously, it was estimated that Basel Banks would see a 50% reduction in the RBC requirements for 1-4s, and regional and small banks have been raising concerns about this capital advantage. Such a low mortgage capital requirement could fuel more housing activity. "It may also fuel a bubble, too," an FDIC official said. The FDIC believes the Basel II Accord must be supplemented by minimum capital requirements, which is not popular with international regulators.

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