Financial Regulatory Forum

Supervisor rejects big overhaul of Basel bank rules

By Reuters Staff
June 30, 2009

    LONDON (Reuters) – Basel II rules will remain the banking industry’s core guide to determining capital charges with only incremental changes expected to reflect lessons from the credit crunch, a top banking supervisor said on Tuesday.
   Some policymakers have called for a wholesale revamp, saying the rules resulted in undercapitalisation at banks who pursued risky activities, forcing governments to bail out some lenders when markets turned sour.
   They were drawn up by the Basel Committee on Banking Supervisors after a decade of haggling. They are still not fully implemented in some countries.
   “Basel III? No way,” Jose Maria Roldan, chairman of the Basel Committee’s standards implementation group, told a British Bankers’ Association conference.
   Nevertheless, the framework was not perfect, he said.
   “It will evolve and look different in future. We are certainly not going in the direction of Basel III. I would say Basel III is now even less of an option,” said Roldan, who is also a senior official at the Bank of Spain.
   “Our priority is that we strengthen Basel II and make sure it’s truly implemented,” Roldan said.
   The seeds of the financial crisis were sown before Basel II took effect in the last year or two, Roldan said.
   “It is doubtful if it was a significant driver of bad behaviour,” he said.
   Excessive reliance on a bank’s own risk models used under the framework may not be appropriate, but nor is relying too much on very simple approaches — a reference to calls for a simple cap on bank leverage, Roldan said.
   The Basel Committee will put forward proposals at the end of the year to beef up bank capital rules from late 2010 and ensure that risks from trading activities, securitisation and off balance sheet operations are adequately capitalised.
   “The idea is not to replace Basel II but to add another layer of safety,” Roldan said.
   (Reporting by Huw Jones; Editing by Ruth Pitchford)

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