For those looking for an up-to-the minute summary of why Basel II is needed I would advise a look at this speech by Randall Krosner of the US Fed. Like most of the speeches by members of the Fed, he appears to understand the reasons for Basel II and why, in a global sense, it is important – unlike the lack of understanding displayed by other US regulators.
As a side note – it is interesting that the BIS PR department choose to publish the speeches of Fed employees and not those of the FDIC. Curious.
I would disagree with him on the need for Basel IA though – as I have said before, if a small credit union in Australia can implement Basel II Standardised I see no reason why a US S&L cannot.
2 comments
19 July, 2007 at 04:33
Martin Davies
There it is captured for the US banking community in a couple of lines, brilliant. Firstly the FDIC can’t let go of their high capital numbers and those other US regulators, well countries with too many regulators have been struggling with Basel II – kind of goes with too many cooks spoiling the broth.
19 July, 2007 at 11:39
Andrew
Martin,
I am no great fan of regulation per se but if we have to have it then a risk- and principles-based approach is the best. The FDIC are wedded to capital as the be- and end-all of regulation. To me, this is because they are primarily a monopoly deposit insurance supplier mascarading as a regulator. To them, the downside comes when a single deposit-taker collapses – so high capital levels are essential for all. The Fed, in particular, does not need to care about an individual collapse – it is worried about the health of the system as a whole, meaning reasonable capital but also profitability is important.
Like most things in risk management, understand the incentives built into the system, reasonably assume that people act logically in response to those drivers and you can see where they will head. The FDIC is acting as a monopoly insurer. To me at least it is that simple.