Under Basel 2, national authorities will have a choice between adopting a more sophisticated, internal model-based, approach to calculating capital requirements, or a simpler methodology that is closer to the existing Basel 1 regime. APRA has indicated that it proposes to apply the internal model-based regime in its consolidated supervision of Australian banks’ global operations, which, of course, encompass their operations in New Zealand.
The possible mix of and sequencing in the use of those tools is under active consideration by the FOMC. We will choose the combination best suited to meeting our macroeconomic objectives, and those choices will influence not only the general level of interest rates, but also the relationships among them.