Home Press room Press releases Solvency ratio: Basel II and the European Directive must be consistent  
 
 
 

Press release  

 

Solvency ratio: Basel II and the European Directive must be consistent

The French Banking Federation (FBF) hopes the recommendations of the Basel Committee and the European Directive on the new solvency ratio will be consistent in their content and timeframe, so as not to distort competition between European banks and their international counterparts.

This request is part of a series of comments on the draft directive, which the FBF intends to submit to Brussels in the next few days. The European Capital Adequacy Directive (CAD III) should reiterate the Basel recommendations and will apply to all banks within the European Union.

The FBF considers it vital that the European text includes no additional constraints. As such :

  • the scope of application must be identical to that provided for in the Basel II recommendations. To have any significant impact, the solvency ratio needs to be monitored for the banking group as a whole. It does not therefore seem appropriate to introduce individual monitoring, as provided for in the draft directive;
  • the dates for implementing the directive should be aligned with the timeframe set in the Basel II recommendations;
  • the technical improvements needed to facilitate the introduction of the new ratio should be the same under both CAD III and Basel II.

The application of the solvency ratio needs to be more flexible

As it indicated in July, the FBF believes that the current Basel project is cumbersome and complicated to implement. As a result, it calls for a review to:

  • ease the application criteria for the different approaches: banks would thus be more inclined to adopt more sophisticated risk calculation methods. This implies, for example, reducing the volume of historical data required in internal models;
  • reduce the pro-cyclical effects of the ratio, i.e. ensure that it does not amplify the effects of the economic cycle. In this respect it is necessary to ease the risk calculation methods, and in particular the stress tests, which should not be based on a purely systematic method.
  • More prudential provisioning (booking of general provisions on non-incurred losses) could also help resolve these difficulties. This point is currently being discussed by the Basel Committee and the IASB;
  • reinforce the treatment of risks linked to particular businesses such as asset securitisation, factoring, lease activities and venture capital.
  • ensure that all banks are subject to identical requirements from their national regulators and ensure transparency in national and international rules for supervision;
  • guarantee that the degree of disclosure stipulated by Basel and by the IASB for comparable data is consistent.

The new solvency ratio, initially scheduled to be introduced as of 31st December 2006, but liable to be postponed, is designed to improve risk management. It will change the way in which banks allocate capital to their different activities, which will ultimately have an impact on the economy. It is important to ensure that no negative effects arise from this regulatory requirement.

CONTACT

Colette Cova
email : ccova@fbf.fr
Tel : 01 48 00 50 07

Kenza Benqeddi
email : kbenqeddi@fbf.fr
Tel : 01 48 00 50 08

 
 
Top of the page