Regulation and compliance

The US regulators' decision to delay implementation of Basel II by an extra year has put the cat among the pigeons. Of course, it can't be expected that the US implement the Accord if it feels the calibrations are completely inaccurate – which would create a hugely uneven playing field between those banks implementing the advanced internal ratings-based approach and those remaining on the 1988 Accord.

However, overseas banks and supervisors are starting to get frustrated with the delay. Central to these frustrations is the implication for overseas banks with operations in the US – the so-called home/host issue. Let's say, for instance, that a Japanese bank, which plans to implement advanced IRB, has a subsidiary in the US. What approach to Basel II should the subsidiary take in the one-year period between the introduction of Basel II in Japan and the implementation in the US? Basel I or Basel