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Cross-Border Supervisory Cooperation under the Revised Basel Core Principles and Basel II

Cross-Border Supervisory Cooperation under the Revised Basel Core Principles and Basel II . 6th Annual International Seminar on Policy Challenges for the Financial Sector World Bank/IMF/Federal Reserve Board Washington 7 June 2006. Karl F. Cordewener Deputy Secretary General. Outline.

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Cross-Border Supervisory Cooperation under the Revised Basel Core Principles and Basel II

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  1. Cross-Border Supervisory Cooperation under the Revised Basel Core Principles and Basel II 6th Annual International Seminar on Policy Challenges for the Financial Sector World Bank/IMF/Federal Reserve Board Washington 7 June 2006 Karl F. Cordewener Deputy Secretary General

  2. Outline • Core Principles - the revision process • Basel II – focus now on implementation • Supervisory cooperation – even more required • Post Basel II - the Committee’s focus

  3. Core Principles • Core Principles (CP) are set of standards for sound supervisory practices • Committee presented 25 minimum standards in 1997 • Jurisdictions can be evaluated (also through self-assessments) against CPs to identify weaknesses • To facilitate evaluations, Methodology released in 1999 • Used in more than 130 countries

  4. Why are the CPs being revised • Material developments in regulation and supervision since release • New supervisory guidance has been issued • Experience gathered through assessments should be reflected • Aim was not a major revision • Drafting group composed of representatives from Committee member countries and other countries • Draft currently out for consultation

  5. Core Principles and Basel II • Basel II not precondition for compliance with CPs • But (high degree of) compliance precondition for successful implementation of Basel II • Basel I banks should also be compliant

  6. Outline • Core Principles - the revision process • Basel II – focus now on implementation • Supervisory cooperation – even more required • Post Basel II - the Committee’s focus

  7. Basel II – A Global Framework • Committee involved non-member countries to a great extent • It is likely that Basel II will become the new yardstick for assessing banks’ financial soundness (as Basel I) • Expected to be implemented by many other countries • Timing of implementation will (and should) vary

  8. When should countries implement Basel II? • Basel II contains time schedule for implementation • But timing should be determined by a country’s own circumstances • Only national authorities can answer when Basel II should be implemented • Basel II may be a lesser priority compared to other efforts (e.g. Core Principles, sound corporate governance) • Basel II has significant benefits, but poses significant challenges as well

  9. Outline • Core Principles - the revision process • Basel II – focus now on implementation • Supervisory cooperation – even more required • Post Basel II - the Committee’s focus

  10. Supervisory cooperation • Not a new issue • From its inception, Committee’s focus was on supervisory cooperation • Several documents released (starting in 1975 with Concordat) • However, cooperation has become even more important under Basel II • Different approaches • Validation • Systemically important subsidiaries

  11. Accord Implementation Group • Mandate: share information, discuss home-host issues, promote consistency in implementation of Basel II • Guidance provided through (e.g.) • High-level principles for the cross-border implementation of Basel II • Home-host information sharing for effective Basel II implementation • Cross-border case studies • Various other documents • Discussions at various events

  12. Home-host information sharing • Paper released in May 2006 • Developed jointly with CPLG • Focus on Basel II, but may be beneficial as regards other issues • Reiterates importance of communication between home and host supervisor while stating that banks have the primary role in implementing Basel II • Addresses “significant” subsidiaries • Significant for the home jurisdiction • Significant for the host jurisdiction

  13. Outline • Core Principles - the revision process • Basel II – focus now on implementation • Supervisory cooperation – even more required • Post Basel II - the Committee’s focus

  14. Basel II is more a journey than a destination

  15. What are the main themes for the future? • Concerning capital requirements, focus is on implementation • Avoiding regulatory overload • Enhanced coordination with global supervisory community • More focus on other supervisory areas

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