WASHINGTON (CN) – Federal financial regulators have agreed on a framework for establishing how much capital large banks must set aside to guard against risk. New regulations are based on the Basel II Capital Accord, which attempts to create an international standard for calculating risk so nations’ financial structures do not crumble.
In the United States, as of April 1, those banks with consolidated assets of at least $250 billion or consolidated on-balance-sheet foreign exposures of $10 billion or more must use the Internal Ratings Based approach for credit risk and the Advanced Measurement Approach for operational risk. These approaches establish capital requirements and risk management expectations aligned much more closely to the actual risks assumed by the banks than the previous approaches did. Other U.S. banks may choose to “opt-in” to the requirements by becoming qualified. The new regulations also provide for enhanced standards for review of capital adequacy and for public disclosures. Click here for details and other new regulations.