EU Cad 3 paper delayed to mid-November

The European Commission hopes to issue an update on progress with its complex third bank capital adequacy directive (Cad 3) in mid-November, a delay to its original plan to publish a paper in late October, a commission spokesman said.

The Cad 3 proposals are modelled closely on the risk-based Basel II accord that global banking regulators want to introduce by late 2006.

The commission, the ruling body of the European Union (EU), wants to apply Cad 3 from the same date to all banks and investment firms in the EU, which by then could comprise 25 member countries compared with the present 15.

The Cad 3 working paper will be a follow-up to the overview of progress with Basel II issued this month by the Basel Committee on Banking Supervision, the architect of Basel II and the body that effectively regulates international banking. The slippage in publishing schedule for the Cad 3 paper does not reflect any disagreements among the experts drawing it up, officials claimed.

Cad 3, like Basel II, will determine how much protective capital banks must set aside as a cushion to absorb unexpected losses from banking risks, including credit, market and operational risks.

The Cad 3 paper will give banks and investment firms an idea of how the directive will look on the assumption that the final version of Basel II will be very like the shape indicated in the third quantitative impact study, or QIS 3, also issued this month.

QIS 3 seeks information from 265 banks in some 50 countries on how Basel II might affect them.

The commission said in July that it was considering how best to modify the Basel II operational risk proposals as they apply to EU investment firms. The commission believes for certain types of lower-risk investment firms, the Basel II op risk capital charges would be disproportionate to the risks faced by those firms.