Commission to propose 2-stage adoption of bank capital rules

BRUSSELS – The European Commission is set to propose this week a two-stage implementation for new bank capital rules, broadly in line with the recently agreed Basel II Accord, sources familiar with the issue told Reuters yesterday. Global banking regulators agreed in May on new rules for how much money banks must set aside against risks. The largest banks were given until the end of 2007 to apply the most complex method for calculating risks contained in Basel II, while banks using a simpler method would start by the end of 2006. The Commission, due to unveil on Wednesday a proposal on how to implement the new bank capital requirements in the European Union, had initially wanted a single starting date at end-2006. But industry sources said the Commission was now expected to propose a staggered timetable. «The approach will be two-phased and more or less in line with the Basel II Accord,» a banking source told Reuters. The Basel II rules would allow banks to better allocate and even lower the amount of capital they set aside by opting to use a more complex way of assessing and managing risks. Under the Commission proposal, EU banks will be left with the choice of implementing rapidly the simpler ways of calculating bank capital, known as the standardized and foundation approaches. Those banks willing to adopt a more complex risk-assessment method will be given an extra year before using the new rules. «There will be an end-of-2006 deadline for the foundation and standard approach and end-of-2007 for the advanced option,» a second source said. The Commission’s proposal, known as the Capital Adequacy Directive, will closely mirror the Basel II rules but will contain certain exceptions and changes to make the rules conform to Europe’s banking environment. While the Basel II proposal is only aimed at globally active banks, the EU rules will apply to more than 8,000 EU banks and to big investment funds. Internal Market Commissioner Frits Bolkestein indicated in May that the Commission was considering a staggered approach to mirror the Basel II Accord. European banks had expressed conflicting opinions on the benefits of staggering the adoption of the bank capital rules. While some large British and Dutch banks had called for a year’s delay, many savings and cooperative banks had wanted earlier adoption. Economists also stressed early implementation of the rules would allow banks to bring forward some of the benefits.