Maintain Current Leverage Ratio in New Basel II Framework, FDIC Chairman Recommends

Basel IIFederal Deposit Insurance Corporation (FDIC)Risk Management

In testimony before the Senate Banking Committee this morning, FDIC Chairman Donald Powell underscored the need to maintain Prompt Corrective Action (PCA) regulations, particularly existing U.S. leverage requirements, as part of the U.S. implementation of the Basel II Framework, an international effort to modernize the bank capital regime.

While emphasizing his support for a recent interagency agreement to move forward with Basel II in the U.S., Powell said serious questions had been raised as a result of recent testing of Basel II among 26 of the largest U.S. banking organizations. Powell's testimony outlined an analysis of the most recent quantitative impact study (QIS-4), suggesting that Basel II's formulas would, for most banks, require far less capital than current statutory Prompt Corrective Action regulations would allow.

Powell said: "The FDIC views the extremely low capital numbers coming out of Basel II's formulas . . . as examples of why, under Basel II, the leverage ratio would play a more important role than ever in ensuring the soundness of our banking system."

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