MT,

Truly we need to figure out a way to standardize our bank regs..

It`s got to happen now!!!

I've been ardently in support of that, Scott. Read through the capital rules when you get some time, you'll be blown away at the critical thinking behind them. I think this is a great thing, but, the devil will be in it's implementation, and adherence to Pillar 2 (effective supervision) - mark my words on this.

Banks are regulated by State and Federal folks IF they are part of the Federal reserve system. The issue is clear and accurate reporting and what do you do when  people stray from the "path"

Hi Charlie, that's the million dollar question that Nouriel Roubini has asked all along... "Who will supervise the supervisors?". As for the scope of the proposal, the Federal Reserve defines banks, bank holding companies, and depository institutions in the Technical Overview. It also clearly defines (and expands) the types of exposures to be considered. As I read it, all financial services and products would fall under Basel II rules. And that's a that's exactly what we're looking for; but again, who will supervising the Fed? That's the question I've been grapling with for some time as well.

Here's Nouriel's paper on the issue of financial regulation and supervision. It's a must read, enjoy.

Ten Fundamental Issues in Reforming Financial Regulation and Supervision in a World of Financial Innovation and Globalization

Moving right along, this evening the OTS issued final guidance on Pillar 2, of Basel II.

From the Office of Thrift Supervisions' website:

Agencies Issue Final Guidance on Supervisory Review Process (Pillar 2) Related to Implementation of Basel II Advanced Approaches Rule

WASHINGTON - The federal banking and thrift agencies today issued final guidance outlining the supervisory review process for banking organizations implementing the new advanced capital adequacy framework known as Basel II. The final guidance relating to supervisory review is aimed at helping banking organizations meet certain qualification requirements in the advanced approaches rule, which took effect April 1.

The advanced approaches rule consists of three pillars: minimum risk-based capital requirements (Pillar 1); supervisory review of capital adequacy (Pillar 2); and market discipline through enhanced public disclosures (Pillar 3). The final Pillar 2 guidance details the agencies' standards for ensuring that each institution subject to the advanced approaches rule has a rigorous process for assessing its overall capital adequacy in relation to its risk profile and a comprehensive strategy for maintaining appropriate capital levels.

Although the guidance does not differ significantly from the proposed Pillar 2 guidance issued in February 2007, the agencies made some enhancements based on comments received and in consideration of key lessons from the events of the past year. The Pillar 2 guidance is being issued by the Federal Reserve Board, the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency and the Office of Thrift Supervision. The effective date of the Pillar 2 guidance is 30 days following its publication in the Federal Register, which is expected shortly. The final Pillar 2 guidance is attached.

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