The Basel Committee on Banking Supervision is to stick to its end-2006 deadline for the introduction of new bank capital rules, despite committing to a last-minute overhaul designed to simplify implementation of the regulatory framework.
At a meeting in Madrid on Friday, members of the Committee reviewed over 200 comments on CP3, the third consultative paper for the new capital Accord. In keeping with the current timetable for implementation, the regulators resisted strong pressure from banks and industry bodies to rethink the proposals and/or delay their introduction.
In a statement posted by the Bank for International Settlements, the Committee comments: "All members of the Committee agreed on the importance of finalising the new Accord expeditiously and in a manner that is technically and prudentially sound. Such an Accord should offer considerable benefits over the existing system. Moreover, it is important in the near term to provide banks with as much certainty as possible while they plan and prepare for the adoption of the new rules."
Improvements to the current framework include: changing the overall treatment of expected versus unexpected credit losses; simplifying the treatment of asset securitisation, including eliminating the "Supervisory Formula" and replacing it by a less complex approach; revisiting the treatment of credit card commitments and related issues; and revisiting the treatment of certain credit risk mitigation techniques.
All outstanding issues should be dealt with by mid-2004, says the BIS, some six months behind the current end-2003 schedule, but not enough to hold back implementation of the full-blown Accord: "The ongoing further discussions by the Committee...are not expected to alter the need for banks to continue improving databases and risk management systems in preparation for the new Accord."
In maintaining the current timetable, central bankers are sending out a strong signal about the import of the new rules to the safety of the banking system. Yet concerns remain, especially in relation to Pillar 2 (supervisory review process), national discretion and national implementation, believes John Tattersall, partner and chairman of the UK financial services regulatory group of PricewaterhouseCoopers.
"The industry will welcome the significant scaling back of the disclosures required under Pillar 3. However, there are real concerns about the operation of Pillar 2," he says. "Industry concerns about issues of competitive equality between different countries are also still very much alive given the reliance on national supervisory discretion in many parts of the proposals, and the extent of national implementation of the Accord in some countries."
PwC has recently completed a pan-European survey of banks' views on Pillar 2, to be published shortly. Key concerns raised by institutions included the competitive implications of different approaches to Pillar 2 by different national supervisors, the ability and resources of supervisors to implement Pillar 2, and the potential unravelling of Pillar 1 capital gains through additional capital charges under Pillar 2.
The consultancy group argues that CP3 adds to the issues to be considered under Pillar 2 – for example adding aspects of securitisation risk and credit concentration risk – without harmonising the approach that supervisors will take to these issues.