CSBS Says Now is Not the Time for New Risk-Based Capital Framework
MEDIA RELEASE / October 30, 2008
Conference of State Bank Supervisors
1155 Connecticut Avenue, NW, 5th Floor, Washington, DC 20036
CSBS Says Now is Not the Time for New Risk-Based Capital Framework
WASHINGTON, D.C. – In a comment letter submitted this week to federal banking agencies, the Conference of State Bank Supervisors said this is not the appropriate time to implement a new capital framework.
?The proposed Standardized Approach and the adopted Advanced Approach will fundamentally change the way capital adequacy is calculated at a time when most of our assumptions regarding quantifying risk and the impact of complex financial instruments are being challenged by global market events,? CSBS President and CEO Neil Milner said.
Milner noted that CSBS has consistently expressed concerns about adopting the Basel II capital framework in the United States. The arguments for its adoption have centered on international competitiveness and the need to more accurately quantify risk.
?While we agree that international competitiveness is important, we do not believe U.S. institutions have had difficulty competing,? Milner said.
CSBS said, given the relative complexity of the Standardized Approach, it is likely that only small number would opt-in. The additional required data elements and significant operational risk charge would likely outweigh any benefit to most community and regional banks.
?Current economic stress has provided a reality check on the real purpose of capital. As risk begins to generate actual losses, actual capital erodes very quickly. We need an approach to capital which encourages building capital during periods of strength and ensures a strong capital base as the economic cycle changes.
?In light of our current economic condition, CSBS believes implementation of a new risk-based capital framework, including the advanced approaches of Basel II, should be suspended. Regulators and the industry need time to work through significant regulatory issues and evaluate the lessons learned from this crisis. This will permit the creation of a capital framework which is appropriately risk sensitive, ensures strong levels of capital, and provides transparency.?
See Comment Letter at http://www.csbs.org/Content/NavigationMenu/RegulatoryAffairs/CommentLetters/CSBSFinalBaselStandardizedResponse.pdf
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Information Contact: Mary White, Vice President, Communications, CSBS, mwhite@csbs.org or (202) 728-5715.
The Conference of State Bank Supervisors (CSBS) is the nationwide organization for state banking, representing the bank regulators of the 50 states, the District of Columbia, Guam, Puerto Rico and the Virgin Islands, and approximately 6,200 state-chartered financial institutions. CSBS also is responsible for improving the quality of state bank supervision by providing department performance evaluation and accreditation programs and supervisory education/training programs for state banking department personnel.
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