Basel II Basics
The federal bank regulators published their joint proposal on supervisory guidance related to Basel II implementation. (72
Fed. Reg. 9084 (Feb. 28, 2007).) The proposed guidance describes agency expectations for banking organizations that would
adopt the advanced internal ratings-based approach for credit risk, and the advanced measurement approaches for operational
risk. The proposal also includes guidance on the Basel II supervisory review process for assessing capital adequacy. The comment
deadline is May 29.
This follows on the heels of a recent GAO study reporting that the Basel II Standardized Approach should be given “serious
consideration” as an option for all U.S. banks. The Basel II envisions a three-pronged approach to enhancing the safety and
soundness of financial institutions: (i) new capital standards; (ii) enhanced supervision; and (iii) increased market discipline
through additional public disclosures. The GAO, among other things, also recommended that the banking regulators “improve
transparency by publicly reporting more frequently on the progress and results of [Basel II] implementation efforts and any
resulting regulatory adjustments.”
Swiss Fondue
In December, the FDIC and the FRB issued for comment a draft interagency notice of proposed rulemaking that would allow the
majority of financial institutions not adopting the Basel II capital accord to choose between the current Basel II system
and a more risk-sensitive Basel IA capital regime. This “menu approach” will allow banks to step up the risk sensitivity of
their capital rules to fit the risk in their balance sheets. The Basel 1A proposal would, among other things: (1) expand the
use of external credit ratings for certain exposures; (2) expand the range of eligible collateral and guarantors used to mitigate
credit risk; (3) use loan-to-value ratios to determine risk weights for most residential mortgages; and (4) add three new
risk weights to the existing framework, 35 percent, 75 percent, and 150 percent.
Joining the Conga Line
As you may know by following these pages, figuring out which agency’s telemarketing rules apply to financial institutions
is a little bit like competitive double-Dutch rope skipping. The FCC, which exercises jurisdiction over banks and other financial
institutions’ telemarketing activities, permits prerecorded calls to customers where there is an established business relationship
(“EBR”). The FTC doesn’t have an EBR exception. The Consumer Bankers Association has urged the FTC to approve the use of such
prerecorded calls, or, in the alternative, to rule that the FCC has jurisdiction over the firms making such calls on behalf
of national banks.
For more information, contact Andrew Smith at asmith@mofo.com.
Prepayment Penalty Preempted
A California appellate court found that HOLA and OTS regulations preempted claims challenging prepayment penalties brought
under California’s Unfair Competition Law and common law. In Weiss v. Washington Mutual Bank, 147 Cal. App. 4th 72 (2007), the court refused to consider plaintiff’s argument that his challenge fell within the exception
for claims that only incidentally affect the bank’s lending operations. Rather, the court found that it could consider the
exception only if the challenged practice was not expressly listed in the regulation’s illustrations of preempted areas.
For more information, contact Michael Agoglia at magoglia@mofo.com.
