Basel interest-rate plan assailed by US regulators, OCC chief says

22 October 2015. By Neil Roland.

US regulators oppose a Basel Committee on Banking Supervision proposal to impose capital requirements to cover possible bank losses from interest-rate increases, US Comptroller of the Currency Thomas Curry said.

Curry, head of the OCC, made the disclosure in response to a question from the audience at an Exchequer Club luncheon in Washington, DC attended mostly by bankers, lawyers and consultants.

“Your specific question about having capital charges for interest-rate risk is something that the OCC and the other US regulators are not in favor of,” he said Wednesday.

US opposition to this portion of the Switzerland-based global authority’s public consultation would likely carry a great deal of weight.

The OCC typically coordinates with the two other principal US banking agencies, the Federal Reserve and the Federal Deposit Insurance Corporation.

Basel’s June proposal seeks to anticipate possible erosion of bank capital and earnings that could result from the widely expected interest-rate increase.

Two options

The plan would change the US practice of monitoring banks’ interest-rate risk on an individual basis through inspections, examinations and stress tests.

It would offer two options.

The first would require minimum capital based on standardized calculations, an approach called Pillar 1. It would offer “greater consistency, transparency and comparability,” the proposal said.

That’s the choice rejected by US regulators, according to Curry.

The second option, called Pillar 2, would combine aspects of Pillar 1 with the US approach in a hybrid, the proposal said.

It would allow banks to use their internal measurement systems while requiring capital calculations as a fallback. This option would also require standardized disclosure of a bank’s risk profile.

“It can better accommodate differing market conditions and risk management practices across jurisdictions,” the proposal said.

Curry gave no indication whether US regulators favor any changes to their practices in Pillar 2.

Banking groups

American banking groups faulted the standardization in both options and called for continuation of US oversight practices.

The proposal “would do more harm than good,” a letter from the American Bankers Association and the Securities Industry and Financial Markets Association said.

It added that “a one-size-fits-all approach” can’t reflect a bank’s interest-rate risk.

An institution’s exposure “is so dependent on the specific bank’s product offerings, market and regulatory environments, business models and customers’ behavior,” the letter said.