EU supervisors to disclose how they apply new bank capital rules
By the end of 2006, supervisors across the European Union will have to disclose how they are applying and policing the new capital adequacy rules for banks, according to proposed guidelines published on Wednesday.
A formal consultation on such a supervisory disclosure framework is being undertaken by the Committee of European Banking Supervisors (CEBS), the London-based body with the key role of promoting supervisory convergence in the 25-country bloc.
CEBS' proposed guidelines on supervisory disclosure stem from the EU's proposed Capital Requirements Directive (CRD), which will transpose the new Basel capital rules - Basel II - into European law. The aim of the new capital rules is to bolster the solvency of banks around the world.
However, there has been concern among bankers that the rules will not be applied uniformly. European banks, in particular, have been seeking transparency in the way that supervisors in the different countries administer the rules. Although these calls for transparency have won the backing of the European Commission, the EU's executive arm in Brussels, the idea has not been enthusiastically embraced by all supervisors.
However, under the CEBS guidelines, any interested party will be able to access relevant information on the implementation of the prudential banking rules for all EU member states in a single location, in a common format, and a common language. The CEBS consultation on the disclosure guidelines will be open to all interested parties, including all banks and investment firms that will be subject to the CRD, as well as other financial market participants and end-users of banking services. The consultation period, which began on March 23, will last three months.
The objective of the supervisory disclosure framework is to provide a comprehensive overview of regulatory and supervisory rules relating to the CRD, and to enable meaningful comparison of the approaches adopted by national authorities, says CEBS. The framework will provide qualitative information on the ways in which EU member states have exercised the options and national discretions contained in the proposed directive, as well as quantitative information, such as national statistical data about national banking industries.
There are an estimated 100 national discretions in the CRD, despite attempts to trim the number down. Many of them are said to be necessary to allow the new capital regime to operate with some degree of flexibility. However, unless policed closely, they may also create an unlevel playing field, says bankers.
The move towards greater transparency, embodied in the disclosure framework, will contribute significantly to ensuring consistent implementation of the new capital adequacy rules throughout the EU, reckons CEBS. It will "enable supervisors to carry out their tasks in an open, accountable, but independent manner." Andrea Enria, secretary general of CEBS, which is both a committee and a secretariat, told a recent conference in London that the supervisory disclosure framework will be a "powerful tool" to check how countries are actually implementing the directive.
The disclosure framework guidelines should be finalised by year-end 2005, and effective by year-end 2006. This will just be in time for the staggered start of the CRD. Under the provisions of the directive, currently being considered by the European Parliament, banks adopting the simpler approaches to the measurement of their credit and operational risks will implement the new rules from the beginning of 2007, while banks allowed to adopt the advanced approaches will do so a year later.
Melvyn Westlake mdwestlake@globalriskregulator.com
Further details can be found on www.c-ebs.org
