bernanke has noted, the ability of basel ii to promote safety and soundness is the first criterion by which these regulatory capital proposals should be judged. a key aspect of basel ii implementation in the united states relates to scope of application. in the united states, basel ii is expected to apply to only a handful of large, complex organizations, which is the principal reason why the u. s. agencies are proposing only the advanced approaches ( a - irb for credit risk and ama for operational risk ). perhaps the main difference between the implementation of basel ii in the united states and the implementation in most other countries is that the u. s. banking agencies plan to retain a revised form of the existing basel i - based capital rules for the vast majority of u. s. banks ; most other countries are replacing basel i entirely and will apply basel ii to the entire banking system. notably, the initial u. s. basel ii proposals, issued in an advance notice of proposed rulemaking ( anpr ) in august 2003, suggested that only the advanced approaches be used in the united states ; comments on the basel ii anpr did not indicate any opposition to the agencies'proposed approaches. it should also be noted that, based on the latest information, apparently none of the large, complex organizations in other basel - member countries plan to adopt the standardized approach for credit risk. therefore, our proposal that large, complex u. s. banking organizations use the advanced approaches of basel ii seems generally consistent with approaches to be used by large, complex organizations in other countries. the u. s. agencies remain open to considering the full set of possibilities for basel ii, so the basel ii npr specifically seeks comment on whether some form of the basel ii standardized approach for credit risk should be adopted in the united states. when deciding whether our large, internationally active banks should have access to a standardized approach, the agencies will need to consider a number of important issues : whether such an approach would accommodate the risks those banks take, now and in the future ; whether it would provide adequate risk sensitivity ; whether it would be useful to have a transition period in order to give some banks more time to prepare to use the advanced approaches, and whether other transition arrangements are available ; whether taking the time needed to develop an appropriate u. s. version of the standardized approach would unduly delay the basel ii implementation process ; and, finally, whether the marketplace would find such an option for those banks meaningful and acceptable. in developing

the years, the u. s. agencies have consciously chosen to maintain a more conservative stance in some aspects of basel i, as applied in the united states, compared with versions of basel i adopted by other countries. for example, the u. s. banking agencies currently impose a supplemental leverage ratio, and risk - based capital is linked to our prompt - corrective - action framework. however, we do not believe that elements of conservatism in existing u. s. capital rules, relative to other countries'rules, have been a barrier to the financial success of our banks, nor have they constrained foreign banks from participating in our markets. on the contrary, we believe that capital strength and the resilience it demonstrates offer some competitive advantages and instill market confidence. that is a key reason that most of the world's largest banks hold capital in excess of minimum regulatory standards. creditors and counterparties will always consider capitalization when assessing the risks associated with these banks. indeed, many factors other than minimum regulatory capital requirements - including domestic and international tax policies, economies of scale and scope, risk - management skills, and the ability to innovate - also affect competition and profitability. on balance, the federal reserve believes that an appropriately conservative approach to capital adequacy serves the united states'interest in maintaining the safety, soundness, and resiliency of our banking system. however, we also recognize the impact that differences among countries can have and that it is worthwhile to minimize them whenever possible. as chairman bernanke noted earlier this fall, before issuing a final rule we intend to review all international differences to assess whether the benefits of rules specific to the united states outweigh the costs. of course, that will include a review of whether u. s. - specific rules are having an adverse impact on the competitiveness of u. s. banks visa - vis foreign counterparts. conclusion i believe that forums such as this one are very useful places to discuss actual and potential differences in capital requirements across countries. as supervisors, we must always strive to minimize these differences and reduce burden on bankers as they conduct business across national borders. however, bankers must also realize that national boundaries still matter, and that some differences in capital requirements across countries will remain. while there may be opportunities here and there to reduce burden through broad policy changes, generally the most productive way to address crossborder issues is on a case - by - case basis. in most cases, blanket