International Financial Conglomerates

1
International Financial Conglomerates Issues
and ChallengesSession 7 Cross Border
Supervisory IssuesPresented by Douglas W.
Roeder,Senior Deputy Comptroller for Large Banks
Office of the Comptroller of the Currency
(OCC)June 2, 2005
2
Basel II Implementation

• The Basel II Framework set forth in 2004 provides
  a basis for countries to begin national
  implementation processes.
• Implementation will be complex and lengthy.
• Essentially, Basel II presents more complex
  variants of long-standing cross-border
  supervision issues.

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What will it take for Basel II to be implemented
well?

• It is highly important that Basel II not be
  treated as a compliance exercise.
• Basel II has to become part of the governance and
  day-to-day management of the bank.
• The advanced approaches under Basel II will
  involve making complex judgments by both banks
  and supervisors.
• Effective communication is key.
• Need to enrich coordinative supervisory framework
  among home/host supervisors.

4
What will it take for Basel II to be implemented
well?

• Host jurisdictions need to think about what
  information they need in order to rely on systems
  and controls (e.g., data, models, calculations)
  outside of their jurisdictions.
• Home jurisdictions need to think about effective
  ways to communicate with host jurisdictions about
  their assessment of the adequacy of centralized
  risk measurement and management systems and
  controls.
• Banks need to have realistic expectations, and
  play their part to communicate effectively with
  host jurisdictions.

5
Home-Host Issues

• Home-host issues are numerous and complex
  (group-wide -- advanced approaches non-home
  subsidiaries -- simpler approaches).
• Industry is justifiably concerned about
  regulatory burden associated with differences in
  the application of Basel II.
• Examples of home-host issues include
• Scope of application transitional approaches
  differing implementation dates use of national
  discretion significant subsidiaries for AMA and
  Pillar 2

6
Accord Implementation Group (AIG)

• AIG efforts should result in greater transparency
  on home/host supervisory approaches to Basel II
  implementation, and validation techniques.
• Supervisory Working Groups have been organized to
  facilitate cross-border Basel II implementation
  at institutions.

7
High-level Principles

• In 2003, AIG published a set of high-level
  cross-border supervision principles for Basel II
  implementation.
• Underscore the need for greater supervisory
  coordination and information-sharing.
• However, respects and acknowledges legal
  responsibilities of host jurisdictions.
• Strongly encourages home/host supervisors to work
  closely to reduce burden on banking groups.

8
High Priority AIG Work

• Broaden and deepen the number of cross-border
  case studies.
• Collect information on internal ratings based
  (IRB) validation practices and methods for both
  banks and supervisors.
• Contribute to Capital Task Force (CTF) work on
  economic downturn LGDs.
• Share information and experiences on
• AMA Pillar 2 and National Discretion
• Broaden interaction with non-G10 countries.
  Continue work with CPWG on home-host information
  sharing.

9
Concluding Thoughts

• AIG is accelerating its work activity and will
  play a key role.
• Clear communication and preparedness on part of
  home supervisor is key to good home/host
  coordination.
• In practice, strengthening coordinated
  supervisory working arrangements among home/host
  supervisors will be a challenge and take some
  time.
• Banks also have a critical role in home/host
  arena.