Local view for "http://purl.org/linkedpolitics/eu/plenary/2002-01-17-Speech-4-159"
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"en.20020117.9.4-159"2
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". – Madam President, on behalf of my colleague I would like to start by saying that the review of capital adequacy is an extremely significant project forming part of the Commission's financial services action plan. The aim is, as mentioned, to modernise the existing capital requirements for banks and investment firms. This will lead to significant benefits within the European financial services markets in terms of increased efficiency and enhanced competition, while at the same time improving financial stability through prudential requirements that are both more comprehensive and more sensitive to the risks faced by these institutions.
The likelihood is that the approach will be not to name specific types of physical collateral that will be acceptable, but to set eligibility criteria that seek to ensure a certain sustainable value of the collateral in the event of borrower default. It is envisaged that appropriate recognition will also be given in the IRB approach to situations where loans are secured against receivables and that the risk mitigation aspects of financial leases will be appropriately recognised.
Consideration is also being given to recognising the practice whereby life insurance policies are placed with the lending institution as security for a loan.
I now turn to the fifth question on implementation of the new Basle Accord, concerning the question of uniformity and flexibility and the date of implementation. On the question of uniformity of application and flexibility, it is important to state once again that the new framework will be based on an evolutionary approach. It is designed to be used differently by institutions of different sizes and complexity.
A key focus of the Commission's efforts lies in ensuring that the specific features of the European Union context, including the wider range of institutions to which the regime will apply, are fully reflected in this new regime.
For reasons of competitive neutrality, the European Union legislative framework for banks and investment firms is based on the principle of equality of treatment between competing institutions, at least as regards certain business and market segments. For this reason, a capital adequacy regime that is profoundly innovative, should not be introduced for only one category of institution. For reasons of international competitive equity, it is very important that European Union institutions move to the new framework within the same timescale as institutions of other jurisdictions, including, for example, the United States. The target date for implementation is 2005.
The Commission intends to adopt the proposal for a directive shortly after final agreement is reached in Basle. This, together with the full and thorough consultative process that is taking place in order to produce a very high-quality proposal, will enable the Commission to contribute to the fullest extent to a process which will allow legislation to be adopted in good time to achieve the accord implementation date.
The importance of rapid implementation of the new framework was recognised in the resolution of this Parliament of November 2000 on the evaluation of the own funds Directive.
On the sixth question, I would say that the Commission is aware of the concerns of some commentators, including some Member States, that the treatment of the maturity dimension proposed in the second consultative document could create competitive disadvantages for banks which typically grant long-term loans. This matter is still being considered in Basle.
On the seventh question, regarding limit retail loans, the Commission believes that the borderline between corporate loans and retail loans should be such as to allow certain kinds of lending to SMEs to be treated as retail in nature. The question of where exactly the cut-off point between a retail loan and a non-retail loan should be, is subject to ongoing consideration. The definition currently proposed in the IRB framework includes a use test, whereby such a loan can be treated as retail in nature if is treated in the institution's risk-management systems and assessments in the same manner as other retail loans and meets the other relevant criteria, including those in relation to value. The Commission regards this approach as useful and effective.
The Commission recognises the special risk characteristics associated with home loans. It also recognises that European residential mortgage markets have different features from other mortgage markets in the world and that they are of particular importance to the European Union banking system. Work is continuing to develop an appropriate treatment for loans of this type.
The European review is taking place in parallel with the review by the Basle Committee on banking supervision of capital requirements for internationally active banks. Before going on to specific questions, let me mention that excellent progress has been made but the review is still ongoing. My response to your questions should therefore be read in that light.
Finally, on the eighth question – regarding coordination between the nine EU Member States that are members of the Basle Committee and the other European Union Member States – the European Union perspective is indeed strongly represented in the Basle Committee. Spain joined the Basle Committee last year, which brings the total number of EU countries on the committee to 9 out of 13. The Commission sits as an observer on the committee, as does the European Central Bank. This has allowed the views of the European Union as a whole to be conveyed, as reflected in the recent development of the Basle proposals, in the review of the capital requirements applicable to lending to SMEs, and in the wider recognition of collateral.
The work of the Banking Advisory Committee is very important in this regard. The BAC is an advisory committee to the Commission, bringing together banking supervisors and regulators. The authorities responsible for the prudential supervision of investment firms have been invited to participate in discussions of the capital review.
A dedicated working structure has been established to assist in developing concrete proposals that should address EU concerns, in particular as regards the application of the capital framework to a wide range of institutions, including smaller banks and investment firms.
To conclude, let me say that the Commission considers that very good progress has been made. Of course further important work remains to be done before the third consultative document is published later in the year. The Commission looks forward to finalising this work and adopting a legislative proposal so that the new regime can be introduced in a timely manner.
Finally, the Commission regards it as important to the process that Parliament be kept informed of the Commission's developing thinking in relation to the potential proposal for a new capital adequacy regime. Commissioner Bolkestein has just this week written to the chairman of the Economic and Monetary Affairs Committee to suggest that it might be useful to arrange a meeting where members of the committee could be apprised by Commission experts in greater detail as to the emerging thinking in relation to the capital adequacy review.
As regards the internal ratings-based approach and smaller banks, the framework likely to be proposed will be based on an evolutionary and flexible approach. Different approaches will be used by institutions depending upon the level of sophistication they wish to adopt – their risk management practices and so on. The significance of the IRB approach has already been identified in Parliament's resolution of 17 November 2000 on the evaluation of the own funds directive. The IRB approach should be designed prudently but in such a way as not to unduly exclude smaller and less complex institutions. The Commission has pursued the above from the beginning, both in preparing its proposal and in participating in the Basle process.
To accommodate the needs of smaller and less complex institutions, the second Commission consultative document of February 2001 diverged on specific issues from the Basle consultative document. Particular focus was put on the Basle minimum standards, which were modified to make them more appropriate to the European Union context. For example, the Commission's consultation paper proposed requiring institutions to apply the IRB approach to all material exposure classes. This will give institutions the possibility to exempt from the IRB approach portfolios that are immaterial. This means applying a partial use approach. The Commission believes that such flexibility strikes an appropriate balance in the European Union context.
Another aspect included in the Commission's second consultative document was the proposal to allow banks to use pooled data in estimating the probability of default of borrowers. This will allow smaller institutions to overcome the possibility that their individual amounts of data will be too small to be statistically meaningful and to rely, where appropriate, on an internal rating system developed by a banking association.
On the potential effect of the new regime on the cost of lending to SMEs, both the Commission and the Basle Committee have strongly emphasised the importance of ensuring that the capital adequacy regime leads to appropriate treatment of credit to SMEs. During 2001 significant progress was made on this aspect and the Commission is committed to a successful outcome in this significant issue.
A modified risk-weight curve for corporate exposures has been developed, which is likely to reduce the capital requirements for many SME borrowers relative to the proposals in the second consultative document. Recognition is likely to be given in the IRB approach to a wider range of collateral. I will say more about this in a moment.
Work has continued on the development of risk-weight proposals in respect of retail lending. In the IRB approaches these are lower than for lending to corporates. Retail lending is likely to be defined in such a way that small business loans that are treated as retail loans by a bank and that meet the other relevant criteria will fall within the retail risks weight. That will benefit the regulatory capital charges of relevant small-business loans, while maintaining appropriate levels of prudential soundness.
The question of recognition of a wider range of collateral in the IRB approach has received a good deal of attention during 2001. This is of particular importance in the context of lending to SMEs. The emerging thinking is to recognise a broader range of collateral than was previously proposed."@en1
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