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Presentation of CEPS report "The new Basel Capital Accord and the future of the European Financial System"
Firstly, I would like to thank Karel Lannoo of CEPS for the invitation
to this presentation today.Congratulations to the rapporteurs
(Ms Rym Ayadi of CEPS, and Professor Andrea Resti of Bergamo University)
and the contributors to the report, as well as the members of
the task force, for producing an interesting and stimulating report
on this very important topic.I am wearing two hats today - Chair
of the Committee of European Banking Supervisors and Member of
the Basel Committee on Banking Supervision.
The Basel Process
Firstly, with my Basel hat, a few words about where we
are in the Basel process.
- The Basel Committee is on-track to resolve outstanding issues
by mid-year 2004, the commitment given in October of last year.
I hope that this provides some satisfaction in relation to the
first recommendation of the CEPS report "regulators need to
come to a final agreement on the new Accord and should not let
uncertainty linger" .
- The prompt completion of the text is important both from the
perspective of the industry and the authorities: It will provide
the industry with certainty and clarity about the new Accord,
so that they can continue with their work on implementation although
the Third Consultative Paper, together with the agreements reached
by the Committee at its last two meetings, already provides a
good basis for these efforts.As with the first Accord, and its
previous amendments, the text will also provide a solid basis
for national - and supra-national - implementation processes to
continue. In Europe we will have a directive, and fortunately,
this is already in good shape, thanks to the parallel process
that Europe has been following.
- There will be a few issues left for further work, but the Committee
intends to complete them as soon as possible prior to the implementation
of the new Accord. And this is consistent with what
we have always said about the need for an Accord which can be
adapted as practices and circumstances change.
- This does not imply instability - on the contrary, it requires
a stable framework, with sufficient structured flexibility to
adapt the details to reflect continuing developments. I
will make some remarks on this aspect from the European perspective
shortly.
The EU Process
In Europe, the Commission Services have said publicly
that they are committed to finalising the text of the draft proposal
for a directive by the summer of this year. The new directive
will apply to all credit institutions, regardless of their shape
and size or of whether they conduct international business, and
also to investment firms. In this sense, the EU does, indeed,
have "a showpiece role in the implementation of the new Accord"
as commented in the CEPS report. And CEBS has
a key role to play in this implementation. Before I go into
more details about this, let me say a few, more general, words
about CEBS.
CEBS (and Transparency)
As noted in Karel Lannoo's chapter " implementation
of the New Accord in the EU" (Chapter 7), CEBS was created
by a Commission Decision, as part of a package to extend the so-called
"Lamfalussy approach" to the banking and insurance sectors.
This Decision came into effect at the beginning of January 2004.CEBS
is comprised of high-level representatives of supervisory authorities
and central banks from the EEA, and already includes the new EU
member states.
- As the so-called "level 3 committee" for banking, CEBS' main
tasks are to give technical advice to the Commission on legislative
proposals in the banking field, to be the key forum for the national
authorities to work together to promote convergence of supervisory
practices, and to enhance supervisory co-operation and exchange
of information.
- All of these tasks are very important, and I will comment on
them in more detail in relation to specific issues in a few moments,
but for now I want to draw attention to the first of these - giving
advice to the Commission on legislation. It is crucial that
we have a legislative structure in the EU that allows regulation
to be adapted to changes in financial markets - not just in the
context of future changes to the new Basel Accord - which as I
mentioned will be "evolutionary" in nature - but also in a wider
context, given the pace of change in financial markets.
This was a driving force behind the Lamfalussy approach, which
foresees the increased use of committee structures in developing
and amending the technical details of legislation. CEBS
has a key role to play in formulating these technical details
for the Commission's consideration.
- And in that respect, CEBS intends to operate with a high degree
of openness and transparency. We will publish soon a draft
statement of consultation practices, setting out our intentions
in more detail. We have already set up an interim website
( www.c-ebs.org ) in order
that our publications and consultations can have the widest reach
possible, and we intend to develop an effective relationship with
interested parties. This is also key to ensuring a smooth
functioning of the process as far as the European Parliament is
concerned. We will also establish a consultative panel of
practitioners and other stakeholders, to support a high-level
strategic dialogue with interested parties, e.g. on the priorities
for CEBS' work.
- Increased consultation should mean more transparency and accountability
in the regulatory process at the Community level and an improvement
in the technical quality of regulations that have to apply to
intermediaries acting under market practices which remain rather
different.Karel Lannoo makes some comments in his chapter about
the increased burden implied by transparency and consultation
, and I can certainly recognise that. We do have to
be sensible and to manage resources carefully, taking a more flexible
and targeted approach where this is more appropriate. But it also
goes without saying that consultation will allow the industry
to have an influence over CEBS' proposals.
CEBS and Basel II (or CAD III)
Turning to the issue of Basel II, or CAD III, I must
first stress that CEBS has placed Basel II at the top of its priority
list. Given the CEPS report's strong support for "clear-cut
principles to define the relationship between banks and supervisors",
especially in the context of pillar two, I think the authors
will be pleased to hear that CEBS will publish soon a set of principles
setting out supervisors' expectations in relation to pillar two.
This clearly shows the importance that we attach to this element
of the new framework and is in line with the report's call for
"a balanced focus between the three pillars of the new capital
adequacy framework" , which I very much support. The
new Accord is a mix of three approaches - rules, supervisory judgement
and market disclosure - which, taken together, provide a more
potent set of tools.I also fully support the call for close
co-operation between home and host-country supervisory authorities
in the cross-border application of the new framework. Co-ordination
of efforts will be key for effective implementation, and CEBS
intends to play an active role in this co-ordination effort. It
is clear that we have to find an efficient solution to the legitimate
concerns of the industry, while ensuring that we don't endanger
supervisors' statutory objectives and, by extension, financial
stability. From a European perspective, the best way could
well be a strengthening of the role of the consolidated supervisor,
together with a clear role and responsibility for CEBS in ensuring
the effectiveness of the process. We are currently developing
and refining our proposals in this respect. CEBS is also
working on convergence issues in relation to Basel II, most particularly
in relation to validation of advanced models, and on exploring
the possibilities for reducing the extent of national discretions
and achieving convergent use of them, which is another aspect
picked up in the report .So, you can see that CEBS has a
lot of hard work ahead, but we think we are well-placed to take
up the challenges, and we welcome the analysis and debate that
reports such as this one inspire.