US bank regulators to move forward on Basel II

U.S. bank regulators on Friday said they would move forward in the process of writing rules to guide the financial industry's domestic implementation of the Basel II international capital accord.

After pulling the reins on the process earlier this year to assess problems unearthed in a test run of the international standards, the U.S. Federal Reserve and other bank supervisors said they expect a U.S. Basel II proposal in the first quarter of 2006.

U.S. regulators said they would propose a revised timeline for implementing Basel II. Under that timeline, the first chance for a U.S. bank to conduct a parallel run of the new standards would be January 2008.

Previously, the accord was scheduled to be phased in from 2007 to 2008.

U.S. institutions adopting the new capital rules would be subject to a minimum three-year transition period during which the bank regulators would apply limits on the amount each bank's risk-based capital could decline with the application of Basel II. Those limits would be implemented with floors intended to be simpler in design and more conservative in effect than those set forth in Basel II, the regulators said in a joint statement.

"The interagency announcement today marks an important step forward in the implementation of a much-needed, more risk sensitive capital framework for our nation's large, complex, international banks," said Federal Reserve Gov. Susan Bies.

International bank regulators agreed last year to the Basel II rules, which aim to modernize bank soundness requirements and prevent a financial crisis in one corner of the world from spreading across borders.

If it works as hoped, Basel II would allow banks to cut borrowing costs for sturdy companies but raise them for risky clients. But the accord's complex formulae have not behaved in tests as originally anticipated.

U.S. bank supervisors said a test drive of the new rules produced widely differing results and substantially lower capital requirements for some banks, raising concern that an undercapitalized bank might falter in the case of a shock loss or recession.

What are people saying about mortgages today:

Rates on 30-year mortgages edged down last week to a seven-month low. Mortgage-giant Freddie Mac reported Thursday that 30-year, fixed-rate mortgages fell to 6.3 percent, down slightly from 6.31 percent two weeks ago. It put rates at the lowest level since they were at 6.24 percent the first week of March.

Bank of Hawaii, Central Pacific Bank, Territorial Savings Bank and Wells Fargo Home Mortgages all cut their 30-year mortgage rates to 5.75 percent this week.

Most people think of a mortgage as a means to an end. After all, you buy a house, not a home loan. But a mortgage is much more than the path to homeownership. It is a financial instrument that must be managed, just like any other financial investment.