The Securities Industry Association has added its voice to the rising clamour among US financial institutions, trade groups and politicians for revisions to the Basel capital accord.
David Strongin, SIA vice president and director, international finance, complains that the new Basel formulas generate capital requirements for many core trading activities of dealers in the capital markets "that are disproportionate to historical loss experience and managements' perception of the innate risk".
In a letter to the Financial Times, Strongin noted that the impact on securities firms - which mark-to-market - is greater than traditional commercial banking - where earnings are generally accrued.
"By assuming that financial service firms are operating on an accrual basis and looking to reserves to tackle concerns about credit erosion, the accord has the effect of requiring mark-to-market firms to 'double count' against credit risk," he says.
If the Basel committee fails to address these shortcomings, Strongin says, "national regulators will need to have the discretion to ensure that the rules governing regulatory capital are more carefully tailored to the underlying risks of securities firms."
Scheduled for implementation in 2007, the accord has come in for sustained criticism from US trade associations, politicians and regulators.
In recent testimony before the Senate banking committee, John Hawke, the US Controller of the Currency, said that the OCC will not sign off on the accord unless the rules are demonstrated to be "practical, effective and in the best interests of the US banking system".
The accord is scheduled to be ratified by the Basel committee of central banking regulators at the end of the year.
Says Hawke: "If we find that our current target implementation of January 1, 2007, is simply not doable – and my personal opinion is that realisation of that target may be very difficult - we will take more time."