Legislation reported by the House Financial Services Committee known as the “Financial Choice Act” includes provisions that would significantly change current U.S. operational risk-based capital (ORBC) requirements. The Basel Committee is planning shortly to finalize global rules that would depart significantly from the Basel II ORBC standards by standardizing them and generally making them considerably more stringent. This legislation would move the U.S. away not only from its current rules, but also bar the U.S. from adhering to Basel standards should they be finalized as proposed. As a result, the U.S. ORBC framework, which governs only banking organizations with assets over $250 billion and certain foreign banks, would be far less onerous. This new approach would, advocates believe, not only free up capital, but also enhance operational resilience by directing capital where it is most useful and recognizing operational-risk mitigants. Opponents fear that any reduction in large-bank capital is worrisome, especially if relief is beneficial to non-traditional activities as is sometimes the case with ORBC.
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