The Federal Deposit Insurance Corp. has approved a rule that requires certain large banks to calculate risk-based capital requirements using their own internal parameters to determine credit and operational risk.
It is the final rule of the Basel II Capital Accord.
Under the new regulation, banks will be able to calculate specific credit risks to each loan, rather than reserving the same amount of capital for all loans, regardless of the credit risk of the applicant.
However, each federal agency retains the discretion to exempt banks from the requirement to use these rules, or to allow others to use these rules on an opt-in basis.
Because foreign banks already apply these standards, the new rule may decrease U.S. banks’ potential competitive inequities with foreign banks, according to The American Bankers Association.
The Federal Reserve said that Bank of America Corp., Citigroup Inc., JPMorgan Chase & Co., Wachovia Corp., Washington Mutual Inc., Wells Fargo & Co. and other large U.S. banks, operating internationally, will be affected by the rule.