The use of these floors and other transitional safeguards during the first years that Basel II is in use will help ensure that there are no sudden drops in capital levels.
The Federal Reserve agrees with the Government Accountability Office (GAO) that (1) finalizing the U.S. Basel II rule will generate crucial information to enable the agencies to make future assessments of the strengths and weaknesses of the Basel II rule for the U.S. banking system and (2) the agencies should continue to evaluate during the transition period whether the advanced approaches of Basel II provide an appropriate regulatory capital  1  See, for example, Randall S. Kroszner and Philip E. Strahan (1996), "Regulatory Incentives and the Thrift Crisis: Dividends, Mutual-to-Stock Conversions, and Financial Distress (765 KB PDF)," The Journal of Finance, vol.