Comptroller Dugan Tells Senate Panel that Basel II
Capital Framework
Will
Substantially Improve Large Bank Risk Management and Controls
WASHINGTON -- Comptroller of the Currency
John C. Dugan told a Senate committee today that the inadequacies of the
current Basel I capital regime for the largest internationally active banks are
a matter of great concern to the OCC because the agency supervises the five
largest banks in the United States, some of which hold more than $1 trillion in
assets, have complex balance sheets, take complex risks, and have complex risk
management needs that are fundamentally different from those faced by community
and mid-size banks.
The new regime is
intended not only to align capital requirements more closely to the complex risks inherent in these largest institutions,
but just as importantand this is a total departure from the existing capital
frameworkit would also require them to substantially improve their risk
management systems and controls, Mr. Dugan said in testimony before the Senate
Committee on Banking, Housing and Urban Affairs.
This would be
accomplished, he said, using a common framework and a common language across
banks that would allow regulators to better quantify aggregate risk exposures,
make more informed supervisory decisions, disclose more meaningful risk information
to markets, and make peer comparisons in ways that simply cannot be done today.
Mr. Dugan told the
committee that the agencies took a critical step forward in the process by
approving a notice of proposed rulemaking (NPR) that established the basic framework
in the United States and includes a number of precautions, including capital
floors for the three year transition period, to make sure it does not result in
unacceptable drops in capital levels.
Mr. Dugan stressed in
his testimony that the OCC and the other agencies are soliciting comments from
all interested parties on the Basel II proposal, including whether the dozen
Basel II large banks should have the option of using a simpler approach. This is a legitimate competitive question,
given that the largest banks in other Basel II countries have such an option,
although, as a practical matter, all such foreign competitors appear to be
adopting the advanced approaches, he said.
The OCC has been a
frequent critic of many elements of the Basel II framework, he said, but has
supported the proposal moving forward towards implementation because a Basel II
regime will help both banks and supervisors address the increasingly complex
risks faced by the largest institutions.
While we may not yet
have all the details right, and we will surely make changes as a result of the
public comments, I fully support the objectives of the Basel II NPR for the
supervision of our largest banks, Mr. Dugan concluded. Likewise, for non-Basel II banks, I fully
support our interagency effort to issue the so-called 'Basel 1A' proposal in the near future as a
way to more closely align capital with risk without unduly increasing
regulatory burden.
His oral and written statements are available on the OCC's Web site
at www.occ.gov.
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The
Office of the Comptroller of the Currency was created by Congress to charter
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assure that national banks are safe and sound, competitive and profitable, and
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