Feds Agree to Drop Basel Ia Risk Proposal

U.S. banking regulators have agreed to kick the Basel Ia risk-based capital proposal aside and give regional and community banks the option of using the "standardized" RBC approach, which many foreign banks have adopted."We are pleased with the recognition of the importance of the standardized approaches, particularly that they offer more flexibility than the earlier Basel Ia proposal," said Wayne Abernathy, executive director of the American Bankers Association. While the largest and most internationally active U.S. banks will move ahead with implementation of the Basel II "advanced" RBC approach, the federal regulators were silent in regard to allowing small banks to continue to operate under the current Basel I rules. But most observers doubt that the regulators would force the small banks to adopt the more complex standardized approach, which has more gradients of risk than Basel I, plus an operational risk component. ABA senior economist Robert Strand noted, however, that some banks strongly supported Basel Ia because of the improvements in the risk weights for residential mortgages. "We will ask that those improvements be allowed as an option under Basel I," he said.