The Federal Reserve's main reason for pursuing Basel II is the growing inadequacy of current Basel I regulatory capital rules for the large, internationally active banks that are offering ever more complex and sophisticated products and services. We need a more risk-sensitive capital framework for these particular banks, and we believe Basel II is such a framework.
In addition, Basel II would promote riskmeasurement and risk-management enhancements and improve market discipline, while giving supervisors a more conceptually consistent and more transparent framework for evaluating systemic risk, particularly through credit cycles.