Four of the biggest banks in the US want to make major changes to new reserve capital rules that are due to come into force in the very near future. They have now asked Federal Reserve officials to let them adopt a simplified version of the Basel II Accord. However, InfoWatch experts say that no one is going to make any exceptions for the US financial giants.
Representatives from Citigroup, JPMorgan Chase, Wachovia and Washington Mutual recently met US Federal Reserve officials to ask that they be allowed to adopt a simplified version of Basel II. The financial giants are unhappy with the new rules and want to reduce the amount of reserve capital banks must hold. Moreover, they do not want to build sophisticated risk management systems. Draft banking rules being touted for the US limit the potential benefits that banks could gain if they were to use more advanced methods for managing risk. Those draft regulations are the result of pressure from politicians who have been lobbying the interests of smaller US banks.
The country’s biggest banks no longer want to adhere to the version of Basel II outlined by the Federal Reserve, and want to use a version specially devised for smaller banks. The American Bankers' Association backed the big banks in an open letter to regulators, stating that under the present rules it was unlikely that banks would benefit from using a highly efficient system for managing risk.
However, the Federal Reserve is unlikely to reach a compromise with the four banks. First of all, the US would be subject to pressure from the EU if the introduction of Basel II was delayed further when other countries have already started the process. Secondly, US regulators have already attracted criticism from abroad by only applying Basel II to the largest banks, while in other countries the regulations apply to banks of all sizes.
“It is quite possible that the big US banks are using the request to the Federal Reserve to delay the introduction of Basel II a little longer. If regulators get caught up in a debate about how to work the revised accord, then the implementation of Basel II may take longer than planned. Therefore, I’m rather sceptical about the initiative by the US’s largest banks. In my opinion, the Federal Reserve has already delayed Basel II enough – the rules have been revised more than once, have been widely debated and then revised again. I don’t think the deadline will be extended again,” says Denis Zenkin, marketing director at InfoWatch.
Source: MSNBC
