Political Economy of the Basel II ProcessTom de Swaan, CFO ABN AMRO Bank

LSE Conference April 8, 2005

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Subjects of today Key principles for sound implementation of the

framework Specific concerns for international banks

– Overview of the home/host debate

– Role of the Accord Implementation Group

Future outlook of prudential supervision

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Key principles for sound implementation of the framework

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3 key principles Quality of legislation is key

– Rapid adoption not at the expense of quality of Directive

Convergence in implementation– Large number of national discretions result in uneven implementation

– Superequivalent measures on top of standards set by Directive

Principles based approach– Basel II is not a compliance exercise

– Avoid accumulation of conservative assumptions

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Specific concerns for international banks

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Background to the home/host debate

How to implement a world-wide Accord through local sovereigns?

Home/host issue relates to the tension between local responsibilities of host regulator and group-wide responsibilities of home regulator

Accord Implementation Group (AIG) promotes consistent implementation across jurisdictions although it has no formal mandate

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Recommendations made to AIG by IIF task force on home host issues

Define clearer norms for expected communications between home and host supervisors and banks/colleges of supervisors

Set clear expectations for timings of approvals, validations and other implementation procedures

Involve banks in the process as much as possible

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Current EU proposal for Capital Requirements Directive

Calculation of capital requirements takes place at the solo level which is to the disadvantage of cross-border banks

Consolidating supervisor is included in the draft directive but should also apply to Pillar II

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Future outlook of prudential supervision

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Looking ahead on the supervision model for Europe

Need for more efficient EU supervisory structures Single EU supervisor? Basel 3: market discipline leading, also for supervisors in

supervisory review process

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Conclusions Basel II gives banks the opportunity to implement and

benefit from enhanced risk management. Implementation of the framework is important to the banking industry

Regulators also need to embrace the core principles of the Basel II framework to ensure effectiveness

The implementation of the framework should be guided by the aforementioned principles

European supervisors are called upon to implement the framework consistently so as not to penalise the European Banking industry vis-à-vis competition