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US falling behind on Basel III adoption

The Basel Committee on Banking Supervision issued its second progress report on the United States implementation of Basel III.

In December 2010, the committee released Basel III, which set higher levels for capital requirements and introduced a new global liquidity framework. It is designed ensure systemically significant banks possess enough capital to cover future risks, enhancing the regulatory framework adopted by Basel II.

The United States, the committee reported, is making little progress in that draft regulations are not even available. Large financial institutions were scheduled to start the process in 2011. However, in a race to adopt financial reform under the Dodd-Frank Act, big banks placed Basel III implementation on the sidelines, it appears.

“Draft regulation for consultation is planned during the second quarter of 2012,” the committee reported. “Basel III rulemakings in the United States must be coordinated with applicable work on implementation of the Dodd-Frank regulatory reform legislation.”

Basel III’s phase-in is due to start in 2013 and be completed by January 2019.

Banks are putting aside Tier 1 capital despite no formal draft of Basel III. Similar to the Basel III proposal, the Dodd-Frank Act contains several provisions relating to capital requirements for U.S. banking institutions.

In September, Federal Housing Finance Agency said the Basel III’s capital requirement increases will result in higher mortgage rates for big banks.

"Some of the largest originators, who are market leaders in setting mortgage rates, will need to either raise the mortgage rates offered to borrowers while reducing servicing released premiums paid in order to compensate for any incremental capital required, or accept lower returns,” the agency said.




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