|
The CRD
is the common framework for the implementation of Basel
ii in EU. This directive is making significant changes to two existing
directives that were implementing Basel I:
1. The Banking
Consolidation Directive
2. The
Capital Adequacy Directive
It is interesting
that the CRD allows for 'national discretions' in a number of areas.
This is the most important strength and weakness of Basel ii.
We have new
standards for risk management...
...
and a much better understanding from the Boards of Directors and
senior management in issues related to risks.
DIRECTIVE 2006/48/EC OF THE EUROPEAN PARLIAMENT AND
OF THE COUNCIL of 14 June 2006
relating
to the taking up and pursuit of the business of credit institutions
(recast)
DIRECTIVE 2006/49/EC OF THE EUROPEAN PARLIAMENT AND
OF THE COUNCIL of 14 June 2006
on the
capital adequacy of investment firms and credit institutions
(recast)
In
order to comply with Basel ii in the European Union (EU), it is
important to understand the unusual way in which the European Union
works.
Basel II is a best practice. It is an Accord, not an Act. A general
framework that gives many levels of freedom to national supervisors.
The Basel Committee does not possess any formal supranational
supervisory authority, and its conclusions do not have legal force.
Basel ii will be implemented in the European Union via the Capital
Requirements Directive (CRD), which is legally binding for every
member state of the EU.
This
directive is making significant changes to two existing directives
that were implementing Basel I in EU: The Banking Consolidation
Directive and the Capital Adequacy Directive.
Financial institutions
have to persuade their regulators that not only they have allocated
capital for their risks, but also they have implemented best risk
management and governance practices.
Managers and professional having to implement Basel ii in the European
Union
have to
read and understand:
1. The
Basel ii
papers
from the Bank of International Settlements. It is impossible to avoid
these papers, because it will be impossible to understand the
requirements that follow.
2. The
Capital
Requirements Directive
(in fact
there are two directives: 2006/48/EC and 2006/49/EC).
Basel ii is an idea, a best practice. These directives describe what
exactly we have to do in order to implement Basel ii in the European
Union.
3. The
guidelines from the Committee of European Banking Supervisors.
An
official interpretation of Basel ii as seen using the lenses of the
Capital Requirements Directive.
4. The
choices
of the national supervisors.
Basel ii
gives many levels of freedom to each country, and professionals have
to learn the "national discretions" and options.
5. Each
bank's
approaches, choices and options.
We have very different Basel ii implementations even if we compare
banks in the same country using the same approach.
6. The
Home/Host
challenges for capital allocation and supervision on a consolidated
basis.
There are also a lot of challenges. In Sarbanes-Oxley, there are only
two different implementations: One for US domestic companies and one
for foreign (no US) companies.
In Basel II, in 100 countries we have
100 different implementations.
Fortunately, we will have fewer
differences among the EU countries because of the Capital Requirements
Directive, this great opportunity for consistency and harmonization.
What is a European directive?
We will start from what is the European Union.
The countries that make up the EU (the member states) remain
independent sovereign nations but they pool their sovereignty in order
to gain a strength and world influence none of them could have on
their own.
Member states delegate some of their decision-making powers to shared
institutions they have created, so that decisions on specific c
matters of joint interest can be made at European level.
It is not a federation like the United States, and it is not an
organisation for cooperation between governments, like the United
Nations. The EU is unique.
The three main decision-making institutions are the:
A. European Parliament (EP),
which represents the EU's citizens and is directly elected by them;
The Parliament has three main roles.
1. Passing European laws - jointly with the Council in many policy
areas. The fact that the EP is directly elected by the citizens of the
EU helps guarantee the democratic legitimacy of European law.
2. Parliament exercises democratic supervision over the other EU
institutions, and in particular the Commission. It has the power to
approve or reject the nomination of commissioners, and it has the
right to require the Commission as a whole to step down.
3. The power of the purse. Parliament shares with the Council
authority over the EU budget and can therefore influence EU spending.
It adopts or rejects the budget in its entirety.
B.
Council of the European Union,
which
represents the individual member states;
The Council is the EU's main decision-making body. Like the European
Parliament, the Council was set up by the founding Treaties in the
1950s. It represents the member states, and its meetings are attended
by one minister from each of the EU's national governments.
Which ministers attend which meeting depends on what subjects are on
the agenda. If, for example, the Council is to discuss environmental
issues, the meeting will be attended by the environment minister from
each EU country and it will be known as the 'Environment Council'.
The EU's relations with the rest of the world are dealt with by the
'General Affairs and External Relations Council'. But this Council
configuration also has wider responsibility for general policy issues,
so its meetings are attended by whichever minister or state secretary
each government chooses.
The Council has
six key
responsibilities:
1. To pass EU laws - jointly with the European Parliament in many
policy areas.
2. To coordinate the broad economic and social policies of the member
states.
3. To conclude international agreements between the EU and other
countries or international organisations.
4. To approve the EU's budget, jointly with the European Parliament.
5. To define and implement the EU's common foreign and security policy
(CFSP) based on guidelines set by the European Council.
6. To coordinate cooperation between the national courts and police
forces in criminal matters.
Most of these responsibilities relate to the Community domain - i.e.
areas of action where the member states have decided to pool their
sovereignty and delegate decision-making powers to the EU
institutions. This domain is the 'first pillar' of the European Union.
C. European Commission,
which represents the interests of the Union as a whole.
The Commission is independent of national governments. Its job is to
represent and uphold the interests of the EU as a whole.
It drafts proposals for new European laws, which it presents to the
European Parliament (EP) and the Council.
It is also the EU's executive arm - in other words, it is responsible
for implementing the decisions of Parliament and the Council. That
means managing the day-to-day business of the European Union:
implementing its policies, running its programmes and spending its
funds.
Like the EP and the Council, the European Commission was set up in the
1950s under the EU's founding Treaties.
THE CODECISION PROCEDURE
Having been established by the Maastricht Treaty, and extended and
adapted by the Treaty of Amsterdam to make it more effective, the
codecision procedure now covers 43 areas under the first pillar (based
on the Treaty establishing the European Community) following the entry
into force of the Treaty of Nice.
As defined in Article 251 of the EC Treaty, the codecision procedure
is the legislative procedure which is central to the Community's
decision-making system.
It is
based on the principle of parity and means that neither institution
(European Parliament or Council) may adopt legislation without the
other's assent.
The 'institutional triangle'
produces
the policies and laws that apply throughout the EU. In principle, it
is the Commission that proposes new laws, but it is the Parliament and
Council that adopts them. The Commission and the member states then
implement them, and the Commission enforces them.
If we want to add a fourth body, it should be the Court of Justice of
the European Communities (often referred to simply as 'the Court'). It
is based in Luxembourg. Its job is to make sure that EU legislation is
interpreted and applied in the same way in all EU countries, so that
the law is equal for everyone.
It ensures, for example, that national courts do not give different
rulings on the same issue. The Court also makes sure that EU member
states and institutions do what the law requires. The Court has the
power to settle legal disputes between EU member states, EU
institutions, businesses and individuals.
|
