This step-by-step implementation plan, which all the U.S. banking agencies support, should ensure that banking organizations maintain strong capital positions throughout the transition years and after. Moreover, safety and soundness depends not only on the absolute level of capital in the banking system but on how well that capital is deployed.
The Basel II framework should make any given level of bank capital work harder, so to speak, by aligning capital more closely with risks taken, by providing incentives for banks to improve their risk management, and by enhancing market discipline through greater transparency. To reiterate, however, to make that framework achieve what is intended requires getting the details right.