A finalized version of the Basel II accord for U.S. banks has been released for comment. Banks will have to work with Basel I and Basel II simultaneously for one year before the Basel II provisions can be fully adopted. The full implementation of Basel II is due to begin in 2008.
The U.S. Federal Reserve Board published a notice of proposed rulemaking for Basel II risk-based requirements. The accord affects America’s largest banks, leading international financial institutions and introduces changes to the current Basel I agreement.
Before Basel II finally comes into force U.S. banks will have to satisfactorily complete a four-quarter parallel run period, beginning no sooner than January 1, 2008, before operating under the Basel II framework alone. Implementation of the new agreement will be completed in three stages, each lasting a minimum of one year.
One of the main differences between Basel II and its earlier version is the need for rigorous assessment of operational risks, including erroneous or destructive staff actions, improper functioning of internal processes and data systems etc.
The Federal Reserve Board’s Basel II document for U.S. banks can be downloaded here.
“The Basel II accord requires significant expenditure from both the banks fulfilling its provisions and the regulatory body. In my opinion, it requires immediate action from financial organizations because trying to comply with Basel II in a short period of time will only cost more," warns Denis Zenkin, marketing director at InfoWatch.
Source: Federal Reserve
