WASHINGTON -- All countries subscribing to the Basel capital accords appear to be implementing risk-adjusted systems in a uniform manner, two U.S. agencies reported Monday.
"A high degree of convergence has been reached" in the definitions of Tier 1 capital, the Federal Reserve Board and the Department of the Treasury concluded in their joint report.
Some differences exist in the composition Tier 2 capital, but "these differences do not have a significant impact on the equivalence of capital requirements applicable to internationally active banks," the report said.
Competitiveness at Issue
The Fed/Treasury study was mandated by the Foreign Bank Supervision Enhancement Act of 1991.
Congress was concerned that foreign banks may gain a competitive advantage in the United States if their home-country requirements are weaker.
"In assessing the capital of foreign banks in connection with applications [in the U.S.], capital ratios should be equivalent, but not necessarily identical," the Fed and Treasury said.
U.S. bank regulators recognize that strict application of U.S. standards to foreign institutions "would disregard important differences in capital instruments and accounting practices in other countries," the two agencies said.
On future applications for U.S. activities, the study noted, the Fed will continue to evaluate a number of factors pertaining to a bank's financial condition, including capital.
At a minimum, banks will be required to meet the Basel guidelines as administered by their home country's supervisory agency.
The Fed said, however, that simply meeting minimum capital standards will not ensure approval of an application. Risk also will be considered.
"For example, the capital ratio necessary to obtain full underwriting and dealing authority will be higher than the ratio required to conduct a low-risk activity," the report said.