Implementation of Basel II Capital Requirements by Foreign Banking Institutions' Branches and Agencies in New York State

Abstract

In the second half of October 2004 the New York State Banking Department initiated an informal survey on Basel II plans by foreign branches and agencies supervised by the Department. A set of questions regarding the approaches to credit and operational risk to be implemented in headquarters as well as in New York subsidiaries was distributed. Replies came from 82 institutions out of 106 of concern, a response rate of 77%. Only five banks claimed they do not consider adopting Basel II at any point in the future. Most of the remaining institutions plan to stick to the adoption timelines suggested by the Basel Committee. Some banks will adopt more than one approach simultaneously or will switch to an advanced approach within a year or two of adoption. The two internal ratings based (IRB) approaches to credit risk will be applied by over ¾ of the institutions. A typical advanced IRB NY branch bank is headquartered in Europe and has over $10 billion in U.S. assets. The Standardized credit risk approach is generally going to be followed by Asian banks with less than $1 billion in U.S. assets. A little less than a half of the NY branch foreign banks will follow the advanced measurement approach (AMA) to operational risk. Asian banks prefer the standardized operational risk approach while European ones opt for AMA.