OCC Approves Basel II Capital Rule

The Office of the Comptroller of the Currency announced yesterday it has approved a final rule implementing the advanced approaches of the Basel II Capital Accord. This rule establishes regulatory and supervisory expectations for credit risk, through the Internal Ratings Based Approach (IRB), and operational risk, through the Advanced Measurement Approach (AMA), and articulates enhanced standards for the supervisory review of capital adequacy and public disclosures for the largest U.S. banks.

“The rule we approved today is a critical component of the U.S. banking agencies’ plans to update and enhance our regulatory capital program,” said Comptroller of the Currency John C. Dugan. “Our current risk-based capital rules are simply inadequate in addressing the complex risks inherent in our largest institutions. The IRB and AMA rules establish capital requirements and risk management expectations aligned much more closely to the risks assumed by these institutions.”

Before it can become effective, the rule must also be approved by the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, and the Office of Thrift Supervision, and it must be published in the Federal Register.

In developing the advanced approaches final rule, the agencies carefully considered comments received during the rulemaking process. Several important changes were made to the proposal in an attempt to balance safety and soundness, regulatory burden, and international and domestic competitive equity considerations.

“While the advanced approaches rule is now fundamentally consistent in most respects with the Basel II Framework that is already being implemented internationally, we retained several safeguards unique to the U.S. supervisory process. In so doing, we are able to fundamentally improve the effectiveness and risk sensitivity of our existing regulations while preserving safeguards critical for safety and soundness purposes,” Comptroller Dugan said.

Consistent with a July agreement among the banking agencies, the agencies are also developing a proposed rule that would provide all non-core banks with the option to adopt a standardized approach under the Basel II Framework. “The development of the standardized approach is an important enhancement of our regulatory capital program for banks not adopting the advanced approaches,” Mr. Dugan said.