Another Reason to Disagree Over Basel
Loan woes amplify regulatory division on implementation
By Steven Sloan
Nothing about the Basel II capital rule has been simple, and its latest flaws, exposed by massive losses in the mortgage market, have further divided regulators. In one corner is Federal Deposit Insurance Corp. Chairman Sheila Bair, who has long warned of the dangers of relying on banks’ internal models to set capital requirements. She is advocating applying the brakes while regulators address Basel II’s problems. In the other corner, Gov. Randall Kroszner of the Federal Reserve Board and Comptroller of the Currency John Dugan said implementation should proceed while regulators around the globe consider revisions. Though many countries look to the guidance offered by the Basel Committee, they can still implement the capital rules as they wish. Despite concerns over national sovereignty, some observers question whether the Basel Committee should have more authority. Karen Shaw Petrou, managing director of Federal Financial Analytics Inc., said the committee will have to move more swiftly this year to maintain relevance. “It took a full 10 years to move the [Basel II] rules, because of the consensus process, which is always awkward, because of the deliberations and the wine at dinner,” she said. “That’s over for the foreseeable future.”