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The Swiss Bankers Association believes that the new Basel Capital Accord (Basel ll) is basically going in the right direction but that it nevertheless does have some weak points
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Basel, 24 July 2003 – In its position paper on the Third Consultative Package (CP 3) of the Basel Committee on Banking Supervision the Swiss Bankers Association (SBA) in principle welcomes the Committee’s proposed three-pillar concept. However, the SBA also draws attention to various weak points. In particular, the Basel ll reforms must be moderate and be able to stand up to a cost-benefit analysis.
In April 2003 the Basel Committee on Banking Supervision released the Third Consultative Package (CP 3) for scrutiny and comment in the framework of revising the Basel Capital Accord. The deadline for comments is the end of July 2003. The SBA agrees that the existing “Basel l“ accord needs revising and in principle welcomes the proposed three-pillar concept. However, the SBA is critical of various aspects of the draft accord and expects its main concerns to be taken into account in the definitive version.
In view of the heterogeneous nature of the Swiss banking sector the SBA welcomes the possibilities of choice offered by the proposed “menu approach“ between various methods of calculating capital requirements. It is especially in the area of capital requirements that regulatory differentiations are of great importance. In particular, even small- and medium-sized banks must be able to cope with the complexity and costs of implementing the new accord.
As far as Pillar 1 (“Minimum Capital Requirements“) is concerned, the SBA believes that the proposed calibration for capital requirements is inadequate on several points. For example, capital requirements for asset securitisation and credit risk mitigation should be corrected downwards in the light of the risks typically experienced in these business areas. Furthermore, the SBA still has strong reservations about the methodology proposed by the Basel Committee with regard to covering operational risk. The proposed methodology is not adequate with regard to the risks or, respectively, would generate considerable implementation costs.
The SBA welcomes in principle the qualitative requirements for risk management by banks and supervisory bodies contained in Pillar 2 (“Supervisory Review Process“). However, the additional work and also the implementation costs for banks must be kept to a reasonable level because Pillar 2 must also be able to stand up to a cost-benefit analysis. Above all, national differences in implementation must not be allowed to undermine the “level playing field” with regard to international competitiveness.
The disclosure of information concerning risk, capital structure and capital adequacy foreseen under Pillar 3 (“Market Discipline“) is, in the SBA’s view, basically correct. Nevertheless, the rules governing disclosure are still too detailed and complex. A solution has to be found that provides useful transparency for supervisory authorities and the public. In particular, the rules concerning disclosure put forward in Basel II must as far as possible be compatible with international accounting standards.
With regard to globally-active banks and crossborder banking business, the SBA considers it particularly important to find a rational division of labour between the supervisory authorities in the home and host countries. Here the SBA believes in “Home Country Control“ - in other words that the centre of gravity should lie with the supervisory authorities in the home country - and for this a systematic coordination between supervisory authorities is necessary.
The Basel Committee aims to publish the definitive version of the “New Basel Capital Accord” in the fourth quarter of 2003. Countries must then implement the Accord nationally by the end of 2006. In Switzerland implementation of Basel ll (“Swiss Finish”) is being prepared in a joint working group headed by the Swiss Federal Banking Commission, and the SBA will continue to represent the interests of banks in Switzerland in this working group.
PDF SBA's position paper
| Contacts |
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| Thomas Sutter |
James Nason |
| Head of Communications Switzerland |
Head of International Communications |
Swiss Bankers Association,
Basel |
Swiss Bankers Association,
Basel |
| Tel. +41 61 295 92 06 |
Tel. +41 61 295 92 15 |
| Fax +41 61 272 53 82 |
Fax +41 61 272 53 82 |
 www.swissbanking.org |
www.swissbanking.org |
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