Feds Float Basel II Option for Big Banks

Federal banking regulators are seeking comment on whether the largest banks in the United States should have the option of adopting a "standardized," or less complex, Basel II risk-based capital standard.During the summer, several banks and their trade groups urged the regulators to give U.S. banks the option of adopting the standardized approach, which is more advanced than the current Basel I standard and includes more risk buckets for mortgages and other assets. The standardized approach also takes into account securitization risks and wholesale lending commitments, and encourages banks to obtain guarantees and derivatives to mitigate credit risk. Comptroller of the Currency John Dugan noted that the largest foreign banks have the option of implementing the standardized approach or the Basel II approach, which is based on internal risk models. "To ensure that all the interested parties have an opportunity to comment on this fundamentally important issue, the agencies added the question to the Basel II preamble," Mr. Dugan told a Federal Deposit Insurance Corp. board meeting. The FDIC board voted 5-0 to issue the Basel II proposal with the standardization question for a 120-day comment period.