1. International Financial Conglomerates – Issues and Challenges Session 7: Cross Border Supervisory Issues Presented by Douglas W. Roeder, Senior Deputy Comptroller for Large Banks Office of the Comptroller of the Currency (OCC) June 2, 2005

2. Basel II Implementation
The Basel II Framework set forth in 2004 provides a basis for countries to begin national implementation processes.
Implementation will be complex and lengthy.
Essentially, Basel II presents more complex variants of long-standing cross-border supervision issues.

3. What will it take for Basel II to be implemented well?
It is highly important that Basel II not be treated as a compliance exercise.
Basel II has to become part of the governance and day-to-day management of the bank.
The advanced approaches under Basel II will involve making complex judgments by both banks and supervisors.
Effective communication is key.
Need to enrich coordinative supervisory framework among home/host supervisors.

4. What will it take for Basel II to be implemented well?
Host jurisdictions need to think about what information they need in order to rely on systems and controls (e.g., data, models, calculations) outside of their jurisdictions.
Home jurisdictions need to think about effective ways to communicate with host jurisdictions about their assessment of the adequacy of centralized risk measurement and management systems and controls.
Banks need to have realistic expectations, and play their part to communicate effectively with host jurisdictions.

5. Home-Host Issues
Home-host issues are numerous and complex (group-wide -- advanced approaches; non-home subsidiaries -- simpler approaches).
Industry is justifiably concerned about regulatory burden associated with differences in the application of Basel II.
Examples of home-host issues include:
Scope of application; transitional approaches; differing implementation dates; use of national discretion; significant subsidiaries for AMA; and Pillar 2

6. Accord Implementation Group (AIG)
AIG efforts should result in greater transparency on home/host supervisory approaches to Basel II implementation, and validation techniques.
Supervisory Working Groups have been organized to facilitate cross-border Basel II implementation at institutions.

7. High-level Principles
In 2003, AIG published a set of high-level cross-border supervision principles for Basel II implementation.
Underscore the need for greater supervisory coordination and information-sharing.
However, respects and acknowledges legal responsibilities of host jurisdictions.
Strongly encourages home/host supervisors to work closely to reduce burden on banking groups.

8. High Priority AIG Work
Broaden and deepen the number of cross-border case studies.
Collect information on internal ratings based (IRB) validation practices and methods for both banks and supervisors.
Contribute to Capital Task Force (CTF) work on economic downturn LGDs.
Share information and experiences on:
AMA; Pillar 2; and National Discretion
Broaden interaction with non-G10 countries. Continue work with CPWG on home-host information sharing.

9. Concluding Thoughts
AIG is accelerating its work activity and will play a key role.
Clear communication and preparedness on part of home supervisor is key to good home/host coordination.
In practice, strengthening coordinated supervisory working arrangements among home/host supervisors will be a challenge and take some time.
Banks also have a critical role in home/host arena.