EP hearing on Basel II and Capital Adequacy

18 January 2005

Jaime Caruana, head of the Basel Committee on Banking Supervision, was invited to a hearing of the Economic and Monetary Affairs Committee in the EP on Tuesday. Mr Caruana underlined the importance of updating the Basel Accord with the new rules in view of the increasing complexity of the world's banking industry and the emergence of new tools for managing financial risk. As the two main issues currently under discussion he mentioned the double default and the trading book review.

One of the key concerns of European banks is which regulator will have authority over banks that operate in several countries (the so-called home-host issue). Mr Caruana said the Basel Committee is working with banks to solve this issue, adding that the effective implementation of Basel II depends on the mutual co-operation between host supervisors.

Turning to a timetable of implementation, Mr Caruana said the framework accord's more advanced approaches have been postponed for an additional year to allow banks more time to get ready. Banks are expected to use the standard approaches of the new accord by the start of 2007, with the more advanced options only applying from 2008.

Mr. Radwan, rapporteur for the Capital Adequacy Directive, expressed his disappointment about the lack of consultation between the Basel Committee and the EU Parliament. Mr Radwan aims to produce a first draft of his report on the new rules by early April.

© European Parliament