EU postpones new bank rules following Basel II delay

The European Commission has postponed the coming into effect of its own plans for risk-based bank regulation by at least a year, following the further delay to the controversial Basel II bank Accord, Commission officials said.

The Commission, which is the ruling body of the European Union, now hopes to have its so-called third capital directive – Cad3 – in operation by autumn 2006. Cad3 will determine how much of their assets banks and investment firms in the 15-nation EU will have to set aside as protection against their business risks.

The Commission’s new date could be ahead of the new calendar for the complex Basel II Accord that global banking regulators propose for large international banks. Cad3 is closely modelled on the risk-based principles of the Basel II Accord, which now looks like coming into effect in late 2006 and possibly as late as January 1, 2007, Commission officials said.

The Basel Committee on Banking Supervision, the architect of Basel II and the body that in effect regulates international banking, decided at a meeting earlier this week to postpone Basel II’s starting date to late 2006 from a previously undetermined date in 2005, international banking regulators said. The Committee itself has so far not made a public statement on the decision.

This would be the second slip in the timetable for the Accord. The Basel Committee originally hoped Basel II would come into effect on January 1, 2004.

The delays reflect the complexity of the Basel II Accord, and in particular difficulties in agreeing the treatment of asset securitisation – bonds or notes that are backed, for instance, by accounts receivable on credit cards – and of long-term loans to small- to medium-sized enterprises.

The Basel Committee is considering whether to issue an interim paper on progress in June this year. That would be ahead of the issue to banks of the key third quantitative impact study (QIS3) on October 1 that will seek information on how the Basel II Accord would affect banks.

The European Commission’s new timetable envisages the issue in June 2003 of its third consultative paper on Cad3 as a prelude to the EC’s adoption of the directive in late 2003 or early 2004 for implementation in 2006.