Reshaping of Basel II Begins with Financial Accounting Standards Board Push

[Dover]

WASHINGTON — Banking regulators issued a 36-page proposal last week, and while it never mentioned the words "Basel II," it amounted to a first step toward reworking the tortured capital accord.

Last week's proposal would correct a flaw in the Basel accord, which did not require banks to hold capital against off-balance-sheet assets, by forcing them to raise potentially hundreds of billions more in capital against such assets when an accounting change takes effect in January.

Though the banking agencies do not expect to make the most significant changes to the Basel II capital rule until the financial crisis subsides, they were forced to act after the Financial Accounting Standards Board issued a rule in June designed to force off-balance-sheet assets back on to the banks' books.

Since the FASB had no power over capital standards, the banking regulators were left to figure out how to determine capital levels once the accounting change takes effect.

"FASB precipitated the issue," said Chris Cole, a senior regulatory counsel for the Independent Community Bankers of America. "Now they are having to confront it."

Karen Shaw Petrou, the managing director of Federal Financial Analytics, agrees the FASB played a role. But she also points to the international Basel Committee on Banking Supervision, which has urged national regulators to require more capital for off-balance-sheet assets.

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http://www.americanbanker.com:80/issues/174_169/reshaping_of_basel_2-1001608-1.html?ET=americanbanker:e467:2040871a:&st=email

[notesdev]

1. horse... barn... -nt