WASHINGTON U.S. capital rules largely adhere to the Basel Committee's international standards but are "materially noncompliant" in two areas, the committee said Friday.
The committee's report assessed U.S. compliance as part of a program to evaluate individual jurisdictions' implementation of Basel III rules. The report analyzed 13 components of the global rules. The U.S. was found to be compliant in seven and "largely compliant" in another four. However, the committee said the U.S. securitization framework and the standardized approach for market risk were inconsistent with the minimum international standards and were deemed "materially noncompliant."
Overall, the Regulatory Consistency Assessment Program graded the U.S. as "largely compliant" with the global rules, which is the second highest ranking behind "compliant." The bottom two grades are "materially noncompliant" and "noncompliant". The RCAP report also noted that several areas of U.S. implementation are "super-equivalent" to the minimum Basel standard.
The discrepancy between the Basel minimum securitization standard and US rules is based on the U.S. prohibiting the use of rating agencies in establishing risk weights for a securitization. Congress had prevented regulators from using the rating agencies in the Dodd-Frank Act. Still, the report said U.S. officials maintain their alternative method is a more conservative approach than that laid out in Basel III, and the committee is inclined to agree.
"While the securitization framework represents a deviation at present, the Basel Committee is reviewing it and is likely to approve a framework that should potentially mitigate this deviation," the report said.
The report said that the U.S. had made permanent a transitional standardized approach for assessing market risk, which "has a material impact on the capital ratio of a few U.S. core banks." According to the RCAP review, U.S. regulators have said that since Basel is presently reconsidering its global standards for market risk, the U.S. will issue a new rule "as expeditiously as possible" once the international committee's work is complete.
The report's findings come as the U.S. has in many cases exceeded the Basel minimum standards for domestic banks. The Federal Reserve Board and other regulators in September issued a final Liquidity Coverage Ratio rule that exceeded the Basel minimum standard, and is poised to issue a Net Stable Funding Ratio rule early next year that is also expected to exceed the Basel standards.