New Basel Capital Accord

BASEL MILESTONESJanuary 2001/May 2003Second and ThirdConsultative PapersFollowing evaluation and revision, a Second Consultative Paper was publishedon January 16, 2001 with a deadline for comments of May 31, 2001. This proposedfor the first time the application of internal rating procedures to set capitalcharges for credit risk. The unsatisfactory and disappointing results of theQuantitative Impact Studies (QIS I and in particular QIS 2), the magnitude of theunresolved areas of regulation and not least the high quality of the comments receivedprompted the Basel Committee to propose a third consultation roundwhich had been categorically rejected in January 2001. The Third QuantitativeImpact Study (QIS 3) has been running since October 1, 2002 and will form thebasis for the Third Consultative Paper expected in May 2003. The period for thesubmission of comments will be 90 days. The EU Commission is also expectedto publish its Third Capital Adequacy Directive in May 2003.October 2003/2006 and BeyondAdoption and Other PlansThe timetable for the adoption of Basel II has been postponed to October 31,2003. The European Commission will publish a draft capital directive in early2004. The final capital directive should be adopted on December 31, 2005 andthen implemented in national law within a year. Basel II is to come into effect atthe beginning of 2007, however – as far as is currently known – banks must performparallel reporting to the BAFin pursuant to Basel I and Basel II from January2006. Reporting pursuant to Basel I will remain the norm during this transitionalphase, however.Further plans, which include revising the definition of capital and the credit riskmodel for setting capital charges, will be realized in the Basel III and Basel IVamendments after adoption of Basel II.ERNST & YOUNG – NEW BASEL CAPITAL ACCORD9