The federal banking agencies are expected to approve rules next month governing how much capital big banks must set aside for securities trading.
Officials from the Federal Reserve Board, the Office of the Comptroller of the Currency, and the Federal Deposit Insurance Corp. said they expect to adopt the long-awaited market-risk rule in August.
Susan Krause, senior deputy comptroller for banking supervision policy, said the revised rule will give relief to some institutions that use their own models to determine capital requirements for market risk.
Examiners will not automatically raise the capital requirements of banks with inaccurate internal models, Ms. Krause said. Rather, they will give the institution a chance to prove that an odd market condition caused its model to fail.
"There is more flexibility in the final proposal," she said.
Despite this change, regulators said, the final rule will be quite similar to the original draft.
"There are no big surprises," said Richard Spillenkothen, the Fed's director of banking supervision and regulation. "It should be very close to what went out for public comment."
The banking agencies proposed in July 1995 to tie capital requirements for a bank's securities activities to its exposure to interest rate swings. The intent is to let banks with safer portfolios hold less capital.
The rule is expected to affect about 25 big U.S. banks with large derivative, securities, and foreign exchange portfolios - including Morgan Guaranty Trust Co. of New York and First Chicago NBD Corp.
The Basel Committee on Banking Supervision, which comprises banking regulators from the major industrialized countries, passed a resolution last year requiring its members to adopt the market risk rules by the end of 1997.
The Fed hopes to implement the rule sooner, Mr. Spillenkothen said. "We will try to expedite that," he said. "But we want to give time for these models to be developed."
Part of the market risk proposal gives banks the choice of basing their capital requirement on their own models or on ones written by the Basel Committee. Banks that use their own models must "back-test" them to ensure they work. This means the banks must use historical data to verify that their gains and losses from securities trading were within the range set by the model. Banks with ineffective models would hold higher capital.
