Summary: GAO reviewed six countries' implementation of the Basle framework to measure banks' capital adequacy standards and to establish minimum capital standards for international banks, focusing on: (1) steps countries took to implement the framework; (2) progress countries made in meeting the objectives; and (3) issues that remained unresolved.
GAO found that: (1) all of the countries undertook efforts to implement the Basle framework; (2) framework implementation did not significantly change any country's regulatory structure; (3) most banks had met or were close to meeting the final 8-percent capital adequacy standard; (4) banks' efforts to improve their capital ratios included issuing new stock, creating new capital instruments, disclosing hidden reserves, and improving profitability; (5) implementation of the standards helped to increase the banking system's safety and soundness, place more emphasis on profitability, risks, and the capital needed to support banking activities, and reduce some of the competitive inequality between internationally active banks; (6) the Basle Committee was looking at ways to refine the framework to better include measurement of interest rate, foreign exchange rate, and position risks; (7) issues left to national discretion included risk weight categories for assets and supplementary capital; (8) unresolved issues related to the framework included consolidation, disclosure, competition between banks and other financial institutions, and hedging; and (9) issues the framework could not address included competitive inequality due to tax, economic, accounting, and regulatory differences between countries.
