ABA Banking Journal - January 2008 - (Page 7) briefing I n 2004, the Basel Committee—the bank regulators from the major industrial nations—finished its revision of the international capital rules. That is, the old “Basel I” capital standard was officially replaced with “Basel II,” at the international level. Since then, participating nations have been developing national rules to implement the international accord. Bankers here have been awaiting U.S. rules, interested to see the impact on their banks. What’s the same. It is important to first recognize what will not change. There will continue to be three capital standards: one for leverage (capital/assets); one for Tier 1 capital (capital/risk-weighted assets); and one for total risk-based capital (expanded capital/riskweighted assets). The minimum requirements to be considered “adequately capitalized” for these three standards will remain at 4%, 5%, and 8%, respectively (5%, 6%, and 10%, to be classified as “well capitalized”). What qualifies as capital will remain unchanged. Finally, the leverage standard will not change in any way. What’s different. What will change is that all banks will be given three options as to how to calculate risk-weighted assets. (Risk-weighted assets serves as the denominator for Tier 1 and total risk-based capital standards.) The options include: the existing Basel I approach; the Standardized Approach; and the Advanced Approach. This menu of options will allow each bank to select a capital rule that best fits its operations. A critical point of this new capital regime is the potential for disparity. Different banks with similar portfolios could, in fact, be authorized to hold unequal amounts of INSIDE THE JANUARY 2008 BRIEFING Website news! New look, content this month p. 8 Snapshot: C&D asset quality takes a hit. . p. 10 Mixed medley of fraud news . . . . . . . . . . . p. 12 Sleight of Mind: Farewell to our fans . . . . . p. 14 ABA Resources . . . . . . . . . . . . . . . . . . . . . . p. 17 “Then & Now” debuts: First edition of a yearlong review of banking history on ABA Banking Journal’s 100th Anniversary p. 14 Basel capital standards kick in, with Basel IA’s replacement in the wings ILLUSTRATION BY ROBERT S. LEVY / IMAGES.COM By Robert Strand, senior economist, economic policy and research, American Bankers Association www.ababj.com/subscribe.html ABA BANKING JOURNAL/JANUARY 2008 7 http://www.ababj.com/subscribe.html
For optimal viewing of this digital publication, please enable JavaScript and then refresh the page. If you would like to try to load the digital publication without using Flash Player detection, please click here.