Regulators Seek Comments on Proposed Guidance for Banks that Would Operate under Proposed New Basel II Framework. The federal bank and thrift regulatory agencies are seeking comment on proposed guidance describing current agency expectations for banking organizations that would adopt the Advanced Internal Ratings-Based Approach (IRB) for credit risk and the Advanced Measurement Approaches (AMA) for operational risk under the proposed new Basel II capital framework. The proposed guidance also establishes the process for supervisory review and the implementation of the capital adequacy assessment process under Pillar 2 of the Basel II framework. The FDIC will accept comments on the proposed guidance through May 29, 2007.

Highlights:
The proposed guidance applies only to banking organizations that would implement the proposed Basel II framework.

The proposed guidance highlights regulatory standards that are primarily principles-based to enable flexibility in implementation, with more direction provided in instances where prudential issues or industry standardization is of paramount importance.

The proposed IRB guidance is intended to provide banks with a clear description of the essential components and characteristics of an acceptable IRB framework.

The proposed AMA guidance identifies supervisory standards that banks should follow to implement and maintain an acceptable AMA framework for regulatory capital purposes.

The proposed Pillar 2 guidance addresses the three fundamental objectives in the supervisory review process under Pillar 2: the comprehensive supervisory assessment of capital adequacy, a bank's compliance with regulatory capital requirements, and a bank's implementation of an internal capital adequacy assessment process (ICAAP).

The publication of these documents should not be construed as the agencies' predisposition of the Basel II Notice of Proposed Rulemaking (NPR).