Basel Committee Proposes Accord Adjustments

The Basel Committee on Banking Supervision (the "Committee") proposed adjustments to the contemplated new Capital Accord ("Basel II") in response to industry comment. Basel II historically has contemplated requiring banking institutions to incorporate both expected and unexpected loss components into the Internal-Ratings based ("IRB") capital requirement. The Committee now intends the IRB measurement of risk-weighted assets to be based solely on the unexpected loss portion of the IRB calculations (the "standardized" approach is not proposed to be modified). As to expected losses, banks now would compare the IRB measurement of expected losses with the total amount of provisions (both specific and general) that they have made for such losses. If the comparison indicates a shortfall, the shortfall amount would be deducted equally from Tier 1 and Tier 2 capital. Any excess resulting from the comparison would be eligible as an element of Tier 2 capital (up to 20% of the total Tier 2