The Basel Committee last week said that it had achieved consensus on the latest round of proposals, which puts the implementation of standard and foundation on track with the year-end 2006 deadline. The more advanced approaches, however, have been pushed back to 2007.

The committee intends to publish the latest text on the framework by the end of June. The text will serve as the basis for the national rule-making and approval processes to continue and for banking

organizations to complete their preparations for the implementation of Basel II.

Bankers and regulators using the advanced approach for calculating the money required to be set aside in reserves against losses can opt to wait for the 2007 year-end deadline. Banks opting to implement the less complex procedures of foundation and standardized approaches will be required to be ready by the original year-end 2006 deadline.

"Given that the bulk of implementation responsibility lies with the bank's home regulator, it is quite feasible that U.S. banks operating in, say, Europe, would be under a different capital regime for a period of time from their local competition," explained analysts at BNP Paribas, adding that recent market reports suggest U.S. banks will possibly delay implementation until 2008. "If this gave the U.S. banks an advantage, would it not be reasonable for European regulators to delay implementation here?"

The issues that directly affect the securitization market (see ASR 1/26) have yet to be resolved at this stage, market sources said. The committee will continue to review the issue of calibration and will not have it ready at the time of the release of the framework. Basel confirmed, in a press statement earlier this week, that it needs to further review the calibration of the new framework prior to its implementation.

"Should the information available at the time of such review reveal that the Committee's objectives on overall capital would not be achieved, the Committee is prepared to take actions necessary to address the situation," they said in the statement. "In particular, and consistent with the principle that such actions should be separated from the design of the framework itself, this would entail the application of a single scaling factor - which could be either greater than or less than one - to the results of the new framework.

"The current best estimate of the scaling factor using QIS 3 data adjusted for the EL-UL decisions is 1.06. The final determination of any scaling factor will be based on the parallel running results, which will reflect all of the elements of the framework to be implemented."

According to the analysts at BNP Paribas, if securitization falls under the calibration issue, it could spell further delays for a definitive risk-based capital measure for ABS banks.

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