U.S. regulators have issued an NPR to implement aspects of Basel II.5 dealing with risk-based capital for the trading book (i.e., market risk).  However, the NPR does not address aspects of the resecuritization framework also included in Basel II.5, reflecting the difficulty U.S. agencies are having implementing the Basel framework following the prohibition in the Dodd-Frank Act that bars U.S. rules from referencing credit-rating-agency determinations.  As discussed in more detail below, the Basel II.5 standards and proposed U.S. implementing rules significantly revise the current treatment of market risk, with the OCC estimating a total increase of $51 billion in capital for affected national banks.  However, the impact of the rules could be mitigated by the Volcker Rule in the Dodd-Frank Act, which bars U.S. banking organizations from certain proprietary trading.  Shedding these activities will reduce any net capital increases, although of course not the total profit impact of a changed business model for capital-market activities in the U.S. by banking organizations. The proposal imposes new corporate-governance requirements, including new board procedures for approving additional disclosures and a requirement for senior-management attestation to their accuracy. Far-reaching changes in risk management, internal controls and models used for market risk will also be required, likely increasing the OCC’s cost estimate and imposing additional changes to the business model of affected banking organizations, especially those large bank holding companies principally focused on capital-market (not retail) banking operations.

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