WASHINGTON—Major U.S. banks aren't rushing to take advantage of the greater flexibility in risk management allowed by the so-called Basel II accord, a bank regulator said Monday.
Large U.S. banks that operate internationally -- such as Citigroup Inc., Bank of America Corp., JPMorgan Chase & Co., and Wachovia Corp. -- are required to switch to the new Basel II standards, but have up to 36 months to do so.
Banks can begin making the switch on April 1. But Comptroller of the Currency John Dugan said at an international banking conference than no U.S. bank has set its own launch date.
Under Basel II, a set of rules approved last year by U.S. financial regulators, large banks will have more flexibility in managing risk and calculating capital reserves.
Under current rules, banks generally must assign the same risk and reserve the same amount of capital for all type of loans, such as mortgages, whether they are extended to borrowers with weak credit or strong credit. The new regulation would allow banks to calculate different risk levels among the mortgages, corporate loans, and other types of credit they extend.
Critics have charged that Basel II will allow the banks to significantly reduce the amount of capital they have to hold in reserve against their loans.
Banks will have the option of reducing their reserves during a three-year transition period to the new rules, but they are restricted to a 5 percent reduction in the first year, a 10 percent reduction in the second year, and 15 percent in the third.
Large banks that are required to make the switch to Basel II must begin the three-year transition within the next 36 months, or by April 2011, Dugan said.
They also must submit an implementation plan to regulators by Oct. 1, Dugan said.
