New Basel Capital Accord

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Cross-Border Supervisory Cooperation under the
Revised Basel Core Principles and Basel II
6th Annual International Seminar on Policy
Challenges for the Financial Sector World
Bank/IMF/Federal Reserve Board Washington 7 June
2006
Karl F. Cordewener Deputy Secretary General
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Outline

• Core Principles - the revision process
• Basel II focus now on implementation
• Supervisory cooperation even more required
• Post Basel II - the Committees focus

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Core Principles

• Core Principles (CP) are set of standards for
  sound supervisory practices
• Committee presented 25 minimum standards in 1997
• Jurisdictions can be evaluated (also through
  self-assessments) against CPs to identify
  weaknesses
• To facilitate evaluations, Methodology released
  in 1999
• Used in more than 130 countries

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Why are the CPs being revised

• Material developments in regulation and
  supervision since release
• New supervisory guidance has been issued
• Experience gathered through assessments should be
  reflected
• Aim was not a major revision
• Drafting group composed of representatives from
  Committee member countries and other countries
• Draft currently out for consultation

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Core Principles and Basel II

• Basel II not precondition for compliance with CPs
• But (high degree of) compliance precondition for
  successful implementation of Basel II
• Basel I banks should also be compliant

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Outline

• Core Principles - the revision process
• Basel II focus now on implementation
• Supervisory cooperation even more required
• Post Basel II - the Committees focus

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Basel II A Global Framework

• Committee involved non-member countries to a
  great extent
• It is likely that Basel II will become the new
  yardstick for assessing banks financial
  soundness (as Basel I)
• Expected to be implemented by many other
  countries
• Timing of implementation will (and should) vary

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When should countries implement Basel II?

• Basel II contains time schedule for
  implementation
• But timing should be determined by a countrys
  own circumstances
• Only national authorities can answer when Basel
  II should be implemented
• Basel II may be a lesser priority compared to
  other efforts (e.g. Core Principles, sound
  corporate governance)
• Basel II has significant benefits, but poses
  significant challenges as well

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Outline

• Core Principles - the revision process
• Basel II focus now on implementation
• Supervisory cooperation even more required
• Post Basel II - the Committees focus

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Supervisory cooperation

• Not a new issue
• From its inception, Committees focus was on
  supervisory cooperation
• Several documents released (starting in 1975 with
  Concordat)
• However, cooperation has become even more
  important under Basel II
• Different approaches
• Validation
• Systemically important subsidiaries

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Accord Implementation Group

• Mandate share information, discuss home-host
  issues, promote consistency in implementation of
  Basel II
• Guidance provided through (e.g.)
• High-level principles for the cross-border
  implementation of Basel II
• Home-host information sharing for effective Basel
  II implementation
• Cross-border case studies
• Various other documents
• Discussions at various events

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Home-host information sharing

• Paper released in May 2006
• Developed jointly with CPLG
• Focus on Basel II, but may be beneficial as
  regards other issues
• Reiterates importance of communication between
  home and host supervisor while stating that banks
  have the primary role in implementing Basel II
• Addresses significant subsidiaries
• Significant for the home jurisdiction
• Significant for the host jurisdiction

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Outline

• Core Principles - the revision process
• Basel II focus now on implementation
• Supervisory cooperation even more required
• Post Basel II - the Committees focus

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Basel II is more a journey than a destination
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What are the main themes for the future?

• Concerning capital requirements, focus is on
  implementation
• Avoiding regulatory overload
• Enhanced coordination with global supervisory
  community
• More focus on other supervisory areas