Home-host complications are a worthwhile consequence of financial stability, according to BIS manager

General manager of the Bank for International Settlements (BIS), Malcolm Knight, has said that cross-border issues are a symptom of economic soundness, as they indicate well-thought out regulation and appropriate implementation of Basel II.

“There is a clear tension between the call for uniformity demanded by the global capital marketplace and country-specific circumstances: this is a hard call to make,” Knight said, acknowledging the industry’s current concerns over home-host issues. Citing differing regulatory cultures of rules-based and principles-based approaches, Knight agreed that developing a universal best practice and levelling the playing field would be challenging.

However, Knight argued that home-host problems were a necessary side-effect of effective supervision. “To my mind, this puts a premium on soundness over uniformity per se, and on patience over haste. I therefore fully endorse the view taken by the Basel Committee and the international financial institutions, for instance, that countries should adopt Basel II only when ready, even though this naturally complicates cross-border issues.”

Knight’s statement may not please some in the industry, who believe that action needs to be taken now to solve difficulties that may arise over home-host issues. “The problem is that regulators are not attempting to rectify home-host issues, let alone admit they will exist. Of course countries should only implement [Basel II] when ready. But regulators are doing nothing to remedy the situation,” said one risk officer.

Knight was speaking at the Bank of Spain Conference in Madrid.

BaselAlert.com