Caruana: 2006 implementation of Basel II still on target, despite difficulties
Despite recent controversies in the wake of the third Basel II consultative paper (CP3), Jaime Caruana, governor of the Bank of Spain and chairman of the Basel Committee on Banking Supervision, says he believes the new Basel II Accord will be implemented by the end of 2006, as planned.
Most of the comment letters received during the recent consultation period focused on credit risk. In particular, the Basel Committee’s plan to include expected losses, in addition to unexpected losses, within the credit risk capital requirement became a flashpoint. “It was intended as a practical compromise to account for the differences in national accounting practice,” said Caruana. US banks in particular were sceptical. Some cautioned against the committee’s proposed approach, claiming it was too much of a departure from the traditional approach of managing expected losses via provisions.
Based on these comments, and its own research, the Basel Committee decided it would be preferable to calibrate regulatory capital on the basis of unexpected trading losses alone. The committee has invited comment on its revised approach through to the end of 2003.
The controversy about unexpected losses is an example of wider criticism that the Basel Committee’s proposals are too conservative. Caruana was keen to stress the committee’s flexibility. He said the committee is open to the possibility of reducing capital requirements, where it can be shown the Accord treats exposures too harshly relative to their inherent risk. He cited the example of retail exposures, where the committee found good economic evidence to support the case for significantly lower requirements compared with those included in earlier drafts. “It’s a critical concern of the committee that banks compete on a level playing field. Competition should be driven by banks’ strengths, not the regulatory environment,” said Caruana.
Only users who have a paid subscription or are part of a corporate subscription are able to print or copy content.
To access these options, along with all other subscription benefits, please contact info@risk.net or view our subscription options here: http://subscriptions.risk.net/subscribe
You are currently unable to print this content. Please contact info@risk.net to find out more.
You are currently unable to copy this content. Please contact info@risk.net to find out more.
Copyright Infopro Digital Limited. All rights reserved.
As outlined in our terms and conditions, https://www.infopro-digital.com/terms-and-conditions/subscriptions/ (point 2.4), printing is limited to a single copy.
If you would like to purchase additional rights please email info@risk.net
Copyright Infopro Digital Limited. All rights reserved.
You may share this content using our article tools. As outlined in our terms and conditions, https://www.infopro-digital.com/terms-and-conditions/subscriptions/ (clause 2.4), an Authorised User may only make one copy of the materials for their own personal use. You must also comply with the restrictions in clause 2.5.
If you would like to purchase additional rights please email info@risk.net
More on Basel Committee
FRTB implementation: key insights and learnings
Duncan Cryle and Jeff Aziz of SS&C Algorithmics discuss strategic questions and key decisions facing banks as they approach FRTB implementation
Basel concession strengthens US opposition to NSFR
Lobbyists say change to gross derivatives liabilities measure shows the whole ratio is flawed
Basel’s Tsuiki: review of bank rules no free-for-all
Evaluation of new framework by Basel Committee will not be excuse for tweaking pre-agreed rules
Pulling it all together: Challenges and opportunities for banks preparing for FRTB regulation
Content provided by IBM
EU lawmakers consider extending FRTB deadline
European Commission policy expert says current deadline is too ambitious
Custodians could face higher Basel G-Sib surcharges
Data shows removal of cap on substitutability in revised methodology would hit four banks
MEP: Basel too slow to deal with clearing capital clash
Isda AGM: Swinburne criticises Basel’s lethargy on clash between leverage and clearing rules
Fears of fragmentation over Basel shadow banking rules
Step-in risk guidelines could be taken more seriously in the EU than in the US