Will Basel II Affect the Competitive Landscape? the Proposed New Rules Are Only One Part of a Broad Picture, Says the New Head of the Basel Committee

By Blount, Ed | ABA Banking Journal, September 2003 | Go to article overview

Will Basel II Affect the Competitive Landscape? the Proposed New Rules Are Only One Part of a Broad Picture, Says the New Head of the Basel Committee


Blount, Ed, ABA Banking Journal


After two attempts at consensus among bankers and supervisors, the Basel Committee on Banking Supervision earlier this year issued the third draft of proposed revisions to the Basel Capital Standard of 1988. Unless plans change again, the main focus of the committee will be on implementation of the new accord, which is due to take effect at year end 2006 as of this writing. In the United States, the Federal Reserve has said that only ten of the largest, most complex banking organizations, and another ten that 'opt in,' will be subject to the new rules, and specifically to the most advanced level of the rules. In Europe, however, the EU Commission has decided to apply the Capital Adequacy Directive to all financial institutions. CAD 3, as it's called, is very similar to the new Basel Accord. As a result, virtually all EU banks, brokerages, and broker-dealers will be operating under the new rules.

What practical impact will this have on U.S. institutions? To find out, Contributing Editor Ed Blount met with newly elected head of the Basel Committee, Jaime Caruana, in July.

Trained as a telecommunications engineer with a degree in 1974 from the Universidad Complutense de Madrid, Jaime Caruana became the Chairman of the Basel Committee on Banking Supervision in the spring of 2003. His early career path took him through the Spanish Trade Ministry with three years in New York as commercial attache; and then, following ten years in the private sector, a series of senior posts with the Spanish Treasury. Starting in 1996, Caruana represented Spain for three years in the Monetary Committee of the European Union. Then, after joining Banco de Espana in 1999, the Spanish central bank, he became its sole Governor in 2000, a post comparable to that of Chairman Alan Greenspan's. As head of the Spanish "Fed," the 51-year old Caruana also helps make policy on the Governing Council of the European Central Bank.

As newly-elected BCBS Chairman, Caruana gave his views on the revised Basel capital accord, relative to its potential effects on competition and risk management in banking markets; the evolving role of bank supervisors; and the committee's upcoming agenda. He spoke just before chairing his first full BCBS meeting on July 16, 2003, at the offices of the Bank for International Settlements in Basel, Switzerland.

BLOUNT: What's the view of the committee on how the new Basel Accord will influence banking competition in each country, since only a few of the largest banks may choose to adopt the new rules?

CARUANA: This question of competition is quite broad. Competition exists on many levels and you are asking me about just one of these dimensions, namely whether differences in a bank's minimum capital requirements may affect its ability to compete.

It's of course a very important objective of the Basel committee to promote a level playing field, both in the international as well as in national arenas. The effects on the competitiveness of banks that choose different alternatives may be important, especially when, as in the United States, some hanks will remain with the status quo. But competition is driven by a wider range of factors than just the minimum capital requirements. For example, in pricing loans, big banks may have sophisticated economic capital calculations. These internal analyses should be driving product pricing more than regulatory capital requirements.

Regardless of whether a bank's internal models are more or less formalized or sophisticated, we should remember that a bank's economic capital needs are likely to drive competitive decisions more than its minimum requirements.

With regard to the effects of banks adopting alternative capital regimes, first it is good to remember that the situation today is that smaller banks tend to have much more capital than what the minimum regulatory requirements stipulate. In my country--and I understand this is also true in the United States--smaller banks often decide to hold more capital than is required by regulation. …

The rest of this article is only available to active members of Questia

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
One moment ...
Default project is now your active project.
Project items
Notes
Cite this article

Cited article

Style
Citations are available only to our active members.
Buy instant access to cite pages or passages in MLA 8, MLA 7, APA and Chicago citation styles.

(Einhorn, 1992, p. 25)

(Einhorn 25)

(Einhorn 25)

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Note: primary sources have slightly different requirements for citation. Please see these guidelines for more information.

Cited article

Will Basel II Affect the Competitive Landscape? the Proposed New Rules Are Only One Part of a Broad Picture, Says the New Head of the Basel Committee
Settings

Settings

Typeface
Text size Smaller Larger Reset View mode
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

Help
Full screen
Items saved from this article
  • Highlights & Notes
  • Citations
Some of your highlights are legacy items.

Highlights saved before July 30, 2012 will not be displayed on their respective source pages.

You can easily re-create the highlights by opening the book page or article, selecting the text, and clicking “Highlight.”

matching results for page

    Questia reader help

    How to highlight and cite specific passages

    1. Click or tap the first word you want to select.
    2. Click or tap the last word you want to select, and you’ll see everything in between get selected.
    3. You’ll then get a menu of options like creating a highlight or a citation from that passage of text.

    OK, got it!

    Cited passage

    Style
    Citations are available only to our active members.
    Buy instant access to cite pages or passages in MLA 8, MLA 7, APA and Chicago citation styles.

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn, 1992, p. 25).

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences."1

    1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

    Cited passage

    Thanks for trying Questia!

    Please continue trying out our research tools, but please note, full functionality is available only to our active members.

    Your work will be lost once you leave this Web page.

    Buy instant access to save your work.

    Already a member? Log in now.

    Search by... Author
    Show... All Results Primary Sources Peer-reviewed

    Oops!

    An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.