Group allocation conflicts heat up

London and Nice -– Regulators and the financial services industry are already starting to point fingers at each other over the problem of allocating op risk capital for banking groups across borders. For example, tempers are particularly flaring in Europe, where the about-to-be released Capital Adequacy Directive will have text outlining how regulators in the EU will co-ordinate. But bankers are already predicting that supervisors will not be able to implement a home-host framework. And indeed, the first cracks in the European regulators’ front are beginning to appear, with the non-EU Swiss refusing to allow top-down allocation mechanisms for the advanced measurement approach (AMA) for banks.

According to Michel Martino, an official in the European Commission’s Banking and Financial Conglomerate’s unit, the forthcoming CAD text will outline the EU’s group allocation strategy. Martino, speaking at a conference in London in early July, said each firm in the EU will have a single lead regulator, who will head up a “college of regulators” of EU host supervisors. A single application for model approval will be made to the home supervisor, who will share the application and