New Basel Capital Accord

Effects of the New Basel Capital Accord on the Norms of Other Standard-SettersThe increasingly international flow ofmoney has meant that, since the 1970sat the latest, developments in bankingsupervision have no longer been characterizedby the isolated actions ofnational supervisory committees.Instead, more or less synchronous reactionsof a series of standard-setters tocertain specific changes in the marketscan increasingly be observed.It is not only quasi governmental supervisorycommittees that are active in standard-settingbut also, to a considerableextent, the market players themselveswho are trying to establish standards forthe appropriate treatment of newactivities and the management ofensuing risks in cross-institution andeven cross-border working groups. Thefollowing recommendations of the Associationof German Banks (BdB) onbalance sheet disclosures on derivativesactivities and market risk are an exampleof a typical case of self-regulationin the area of accounting and have becomethe standard for transparency inreporting:First and foremost, however, it is thesupervisory committees of state institutionsthat are responsible for definingsuitable regulatory procedures to combatrisks arising from developments onthe financial markets in order to ensurethe soundness and stability of thefinancial system.Due to the fact that innovations in thefinancial industry can be rapidly reproduced,the global and increasingly fastspread of new ideas means that numerouscommittees are dealing with almostidentical subjects. To some extent thework of committees is interlinked –often the same people are working onthe same issues on different committees.Nonetheless, diverging interests canresult in different regulations. Overall,however, standard-setters are endeavoringto harmonize regulations.Basel developments in capital requirementsnaturally have a strong influenceon the progress of harmonizationin banking legislation in the EU. Givenpast experience of long-winded agreementprocesses prior to adoption of anEU directive and the subsequent nationalimplementation, the plan of the EUCommission to incorporate the futureBasel capital requirements word forword in an EU provision should speedup the process considerably. After therecent publication of the EU Commission’sSecond Consultative Paper, BAFinwelcomed the fact that due to the closetiming of the publication with the secondBasel Paper, competitive equalitybetween the European banking industryand non-European institutions will bemaintained.Balance Sheet Disclosure of Financial Derivatives – Recommendations of the Accounts Committee of the Association of GermanBanks for Reporting on Transactions With Financial Derivatives in the Framework of Banks’ Financial Reporting.Disclosure of Market Risk – Recommendations of the Accounts Committee of the Association of German Banks on the Disclosureof Quantitative Information on Market Risk Potential in Annual Reports.Balance Sheet Recognition and Disclosure of Credit Derivatives – Comments, Assessments and Recommendations of theAccounts Committee of the Association of German Banks.ERNST & YOUNG – NEW BASEL CAPITAL ACCORD11