more easily identify price disparities that require investigation. if disparities are found to violate the ecoa or fha, certain federal agencies are authorized to compel lenders to cease discriminatory practices and, among other remedies, obtain monetary relief for victims. the public disclosure of price information under hmda - in the form of spreads between the annual percentage rate ( apr ) on a loan and the rate on treasury securities of comparable maturity - is designed to ensure that the data continue to be useful in improving market efficiency and legal compliance. the apr represents the cost of credit to the consumer and captures the contract - based interest rate on a loan as well as the points and fees that consumers pay up front, converted to a percentage rate. but since these fees have to be amortized over the term of the loan to calculate the apr, and since interest rates vary over time, even the apr can be difficult to use as a basis of comparison across loans. because of interest - rate fluctuations, the hmda rules require lenders to report the difference between the apr and the rate on treasury securities of comparable maturity for any loans with rate spreads that exceed prescribed thresholds. for first - and second - lien loans, the thresholds are 3 percentage points and 5 percentage points above the treasury security of comparable maturity, respectively. these particular thresholds were chosen to exclude the reporting of the vast majority of prime - rate loans and include the vast majority of the subprime - rate loans, minimizing the burden of the data collection on lenders while providing information on that portion of the market where concern about consumer abuse is most prevalent. although the addition of the price data significantly increases the robustness of hmda data, the data alone do not prove discrimination. instead, the data will be used as a screen to identify any aspects of the higher - priced end of the mortgage market that warrant closer scrutiny. the new hmda data are clearly limited : they do not include credit scores, loan - to - value ratio, or consumer debt - to - income ratio - all factors relevant to the cost of credit. because these important determinants of price are missing, one cannot draw definitive conclusions about whether particular lenders discriminate unlawfully or take unfair advantage of consumers based solely on a review of the hmda data. the new data will be useful to examiners in identifying particular loan products or geographic areas with significant pricing disparities and establishing one or more focal points for

which positions can be included in the trading book for regulatory capital purposes ; stronger requirements for prudent valuation methods for trading book positions ; an incremental charge for default risk not captured in the var - based calculation ; more explicit and robust modeling standards for capturing specific risk ; and a requirement that banks incorporate stress testing into their pillar 2 internal capital requirement. moving forward with basel ii and revisions to basel i as i noted, we encourage a healthy debate about the agencies ’ proposals - - including the recently revised timeline for basel ii. we look forward to engaging the industry, the congress, fellow supervisors, and others in a discussion about what effects the basel ii framework and the basel i revisions might mean for our banking system. the proposals are intended to provide the right incentives for bankers, but if those do not appear correct, we want to know. we recognize the benefit of hearing many views and we realize that vigorous discussion and debate produce a much better product. the agencies also recognize that clear communications from the regulators can assist institutions in making preparations and thereby enhance the chances for success. accordingly, we intend to publish a full set of proposed u. s. basel ii supervisory guidance to accompany the next rulemaking proposal, so that all possible information is made available. when it comes to basel ii, we recognize that certain details relating to internal bank systems and processes will depend on what the final u. s. rule and guidance contain. accordingly, we are available to discuss implementation efforts with bankers at any time, and we want to hear specifics about which elements of the proposal they think will demand the greatest investments or generate the greatest uncertainty. we certainly hope that many upgrades made for basel ii are those that banking organizations would make anyway. and we are equally eager to hear whether the anpr contains elements that would add burden in the calculation of regulatory capital for non - basel ii banks. with that information, the agencies can then determine where best to target resources to assist institutions in the transition process. competitiveness concerns to address the uncertainty of moving ahead with these two regulatory capital initiatives, we expect to remain vigilant about potentially unintended and undesired consequences that might have competitive effects on a certain class of banks or specific product lines. in that vein, the federal reserve has published several white papers analyzing the potential impact of basel ii on specific aspects of banking, such as small - business lending, mortgage lending, and mergers and acquisitions. a paper on credit cards is expected before year - end. while