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Excerpt
“Our goal is to go beyond a rules-based structure to an incentive-driven, risk-sensitive and evolutionary system. That will encourage banks themselves to identify, measure, and manage their risks appropriately.
“A key part of this work is thus to provide banks with the appropriate incentives to improve constantly their processes for measuring and managing risk.
“We have not moved to acceptance of full credit risk modelling yet. While regulators can perfectly understand the motivation behind banks' desires to do this, most do not view them as realistic. Given the current state of technology, there is still more work to be done to increase regulators' confidence in risk modelling. Technicians say they need to know only a few things to predict the outcomes. The problem is they disagree about precisely what those things are.
“Of course the new Basel rules are not a perfect fit for the European context. And, as we have always promised, we will make modifications where these are necessary.
“For example, we are proposing to permit institutions to adopt a 'partial use' approach. Also, in our last Consultation Paper we suggest modified rules for investment firms. For higher-risk investment firms we continue to consider the issues. However, the higher risk to investors and systemic stability together with level playing field issues suggest that the rules should not differ greatly from those for banks.
“The nature of the new capital requirements Framework has implications for the way we do financial regulation and supervision in Europe.
“We therefore intend to design our Directive proposal so that only the key principles and central requirements need to be decided by co-decision. On the other hand, the detailed elaboration of these provisions should be able to be amended by a relatively quick procedure so-called 'comitology'.
“We are developing proposals designed to enhance supervisory convergence. For example, to have one 'co-ordinating supervisor' for each cross-border banking group in Europe. This would centre and limit responsibility for consolidated supervision and prudential reporting in one authority.
“Industry has supported these suggestions as this would reduce regulatory costs and ensure consistent enforcement across the EU.
“We have just recently adopted a decision establishing a Committee of European Banking Supervisors, the 'CEBS'. A key task of this Committee will be to enhance consistency in the application of banking directives and convergence of supervisory practices in an enlarged EU.
“We are also looking at including requirements on supervisors to disclose key aspects of the way in which they implement the new framework.
“Another idea is a European 'rulebook' for and by supervisory authorities. It would detail how the Directive will be applied in day-to-day practice across the EU. I would be interested in your views about this.