FEDERALIST SOCIETY FINANCIAL SERVICES PRACTICE GROUP[dagger]: PANEL DISCUSSION: "THE IDEAL BASEL", THE

Fordham Journal of Corporate & Financial Law, 2008 by Fisher, Keith R

Finally, as a piece Mike mentioned correctly, Pillars Two and Three, let me mention one piece of Pillar One that hasn't, I think, come up before, and that's the operational risk-based capital charge.107 The complexities that Mike mentioned on the credit side are amplified, worsened tremendously, on the ops. risk108 side because nobody yet has agreed on how to measure operational risk or capitalize it. There is some talk, there are some models, all those geeky model-builders are out there spending millions thinking this through, but there's no agreement. There should not be a capital charge for operational risk until there is better agreement on the simple approach to it.

In the United States, competitiveness problems will ensue if we implement one because, unlike the E.U. and other nations, we cannot, under law,109 impose the Basel rules on non-banks.110 Most of the major players in the asset management arena are in non-banks, and you can bet they're going to stay there with this ops. risk charge in place. It will drive fee-based business out of the banking system. To the degree that we come up with a capital rule that creates a capital incentive, firstly, to drive out low-risk assets and, secondly, to drive out fee-based lines of business like advising customers into the non-banking sector, I think we're going to end up with a banking system we don't much like, that doesn't serve us well.

So, an Ideal Basel, I think, is a speedy Basel. It is a better Basel. It will never be a perfect one, but I do think we need to move quickly and put Basel I to rest in the not-too-distant future.

Thank you.

KEITH FISHER: Thank you very much, Karen.

Our next speaker is Wayne Abernathy, who is the Executive Director for Financial Institutions Policy and Regulatory Affairs at the American Bankers Association. Before joining the ABA, Mr. Abernathy served as assistant secretary for financial institutions at the Treasury under the current president and received the Alexander Hamilton Award in recognition of his service.111

Prior to that, as we've heard from Senator Hagel, he was staff director of the Senate Banking Committee under former Chairman Phil Gramm, and he had extensive experience in several positions in the Senate Banking Committee, having started there, I guess during the early '80s, as an economist for one of the subcommittees. He will provide us with his perspectives on what is actually going on in the industry and what many people in the industry are thinking.112

So, Mr. Abernathy.

WAYNE ABERNATHY: Thank you very much, Professor Fisher. It's a pleasure for me to be in this gathering with you here today. As I was thinking about this subject matter and being here at the Federalist Society, it occurred to me, I cannot think of a better example of the virtue of our Federalist system than the American banking system. Our dual banking system is a direct product of our federal system of government.113 Because of that, we lead the world in terms of innovation, in quality of product, quantity of product, and the variety of different services that we provide. We do that because we have a banking regulatory system that's federal-based, based on the national government, based at state governments, and the competition between the two. 114 And it is that competition that gives us a lot of good benefits if you're a consumer, as well as for the industry.