BASEL COMMITTEE ON BANKING SUPERVISION 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

BASEL COMMITTEE ON BANKING SUPERVISION 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

BASEL COMMITTEE ON BANKING SUPERVISION 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

BASEL COMMITTEE ON BANKING SUPERVISION 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

BASEL COMMITTEE ON BANKING SUPERVISION 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

BASEL COMMITTEE ON BANKING SUPERVISION 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

BASEL COMMITTEE ON BANKING SUPERVISION 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

BASEL COMMITTEE ON BANKING SUPERVISION 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

BASEL COMMITTEE ON BANKING SUPERVISION 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

BASEL COMMITTEE ON BANKING SUPERVISION 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

BASEL COMMITTEE ON BANKING SUPERVISION 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

BASEL COMMITTEE ON BANKING SUPERVISION 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

BASEL COMMITTEE ON BANKING SUPERVISION 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

BASEL COMMITTEE ON BANKING SUPERVISION 14 Basel II is more a journey than a destination

BASEL COMMITTEE ON BANKING SUPERVISION 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