Fed governor says Reserve will compare risk sensitivity with burden on smaller banks

Susan Schmidt Bies, governor of the US Federal Reserve, spoke about the balance the Fed needs to strike between strict regulation and excessive burden to US financial institutions. Though the banking industry in the US is doing well, Bies emphasised the need for banks and supervisors to consider downside risk, and that even community bankers will be affected by proposed changes to the US regulatory system.

Addressing the proposed revisions to US regulatory capital rules, Bies pointed out that as Basel I has become increasingly inadequate for large, internationally active banks, its capital requirements have over the past decade begun to deviate substantially from the risk profiles of large, complex organisations.

In addition to making regulatory capital measures more meaningful, Basel II will make the financial system safer by substantially improving risk management at banks. “We have already