Comptroller Dugan Says Basel II Capital Framework Will Substantially Enhance Safety and Soundness

Basel IIOffice of the Comptroller of the Currency (OCC)Risk Management

WASHINGTON -- Comptroller of the Currency John C. Dugan told the Senate Banking Committee today that the goal of the Basel II Capital Framework – and a separate initiative for smaller institutions – will substantially enhance safety and soundness.“Basel II will promote significant advances in risk management that will benefit supervisors and banks alike and substantially enhance safety and soundness,” Mr. Dugan said in testimony before the Senate panel.

However, the Basel Framework will inevitably require adjustments to address supervisory concerns, Mr. Dugan said. While the recent Quantitative Impact Study 4 (QIS-4) of the Capital Framework’s impact on large U.S. banks showed widely different results for participating institutions and suggested the possibility of substantial reductions in capital, the Comptroller said it is important now to see how live systems operate in a transition period.

“We need to observe live systems in operation – and subject them to rigorous supervisory scrutiny – before we will be able to rely on Basel II for regulatory capital purposes,” he said.

To accomplish that, Mr. Dugan said, the upcoming Basel II rulemakings will provide a meaningful transition period during which regulators can observe and scrutinize Basel II systems while strictly limiting, through a system of simple and conservative capital floors, potential reductions in capital requirements.

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