In what looks like a (near) total victory for the US Federal Reserve, agreement has been reached between the various US regulators on the final implementation of Basel II in the US.

The elements of the deal:

  1. The risk insensitive capital floors (flaws) have been dropped, replaced with a gradual (5%p.a.) maximum drop in capital over the first 3 years;
  2. Basel IA has disappeared as an option;
  3. Basel II Standardised becomes an option for US banks; and
  4. Basel II Advanced will be implemented “and should be technically consistent in most respects with international approaches”

All I can say about this is: Excellent. Amongst many others, I have long been a critic of the stupid questionable US approaches. I am very glad the Fed held their line and, apart from a fig leaf of a review at the end of year 2, they have been vindicated.

Well done.