Banks to See Outline for Capital Adequacy Rules

Federal regulators next week will offer the largest U.S. banks an outline for rules that will change how much capital they are required to hold to protect against losses.

The Federal Deposit Insurance Corp. board is expected to vote Sept. 5 on a proposal on how to implement the Basel II international banking accord, agency Chairwoman Sheila Bair said Tuesday. The FDIC proposal will be the first move by U.S. bank regulators since the Federal Reserve offered a Basel II blueprint in March.

“The strong likelihood is the board will approve it,” Bair said.

Basel II is an international agreement on rules intended to link capital requirements more closely to the kinds of risks inherent in modern banking.

Bank regulators maintain that the changes are necessary because the largest international banks have engaged in more complex financial transactions, such as derivatives trading, outgrowing the rules set out in Basel I, which were adopted in 1988.

The agency will accept four months of public comment that could lead to changes before the regulations become final, Bair said. The Office of the Comptroller of the Currency and the Office of Thrift Supervision are expected to offer their own sets of Basel II regulations identical to the FDIC proposal.

Bair said the agency would consider a request by big banks to allow them to adopt more lenient rules proposed for smaller banks. Large banks have complained that the accord would require them to develop a risk management system that would be too costly and complicated.

The bank accords are named after the city in Switzerland where the initial agreement was negotiated.