BASEL, June 25: The world’s top bank watchdog on Saturday moved to dispel concerns that the new capital safety accord known as Basel II would face implementation delays due to its complexity.
Jaime Caruana, chairman of the Basel Committee on Banking Supervision, said that the landmark accord was on-track for implementation in 2007-2008 despite legislative wrangling in Europe and rule-making hurdles in the US.
“I think this accord is in very good shape and I don’t expect a delay,” Caruana told Reuters ahead of a central banking summit held by the Bank for International Settlements in the Swiss border town of Basel.
The accord, published last year amid great fanfare, represents the most sweeping changes to the financial sector in a generation, burdening banks with hefty capital charges for risky behaviour and rewarding them for safe practices.
But concerns about the accord have increased in recent weeks after Europe stalled legislation that would have translated the accord into EU law.
Concerns about fair treatment by European supervisors in ongoing cross-border takeover battles had also raised concerns about a level-playing field and deprived the bill of support.
Parliamentarians had also burdened the bill with 888 amendments, some of them calling for special treatment for certain business sectors.
“They will have to think about these amendments,” Caruana said. “The result will be something that will be perfectly compatible with Basel II.”
At the same time, US regulators had worried publicly about the timeline after a detailed impact study revealed huge swings in the capital charges - set aside by banks as a buffer against crippling losses in case of a surprise shock — among the banks planning to implement it.
Caruana, a member of the Governing Council of the ECB and head of the Bank of Spain, said that the drafters of the accord had anticipated possible shifts in capital charges and drafted it accordingly.
“These are not unpredictable results. This is part of the process,” he said. “We know that there are very important and significant changes.”
The new accord transforms the way banks calculate risk, going from a one-size-fits-all approach for certain credit categories to detailed charges for individual borrowers.
But some regulators have expressed surprise at impact studies predicting that capital charges for low-risk banks such as mortgage lenders would fall by more than half.
Caruana said the accord’s implementation mechanisms had anticipated some uncertainties at the outset.
