| The European Parliament has voted to adopt the Basel II capital adequacy framework by giving its approval to the EU's Capital Requirements Directive. The vote, which is expected to be passed at this first reading and receive formal approval by finance ministers from EU member states in the next few weeks, gives the go ahead for more risk-sensitive minimum capital requirements for banking organisations.
The Basel II Accord, an agreement forged by the Basel Committee on Banking Supervision that is more representative of modern risk management practices, will be implemented in the EU via the Capital Requirements Directive (CRD). The new Basel II framework, which includes the management of operational risk as well credit and market risk, seeks to ensure that the financial resources held by a firm in reserve to cover for unexpected losses are proportionate to the firm's risk and control profile.
During the debate on CRD conducted in a plenary session of the EU Parliament in Strasbourg, Commissioner Charlie McCreevy told MEPs, "A recent study estimated that banks would have reduced capital requirements of about €80 to 120 billion as a result of the proposed directive."
The issue of "comitology" - the system which grants the Commission authority to decide on the detailed implementation of an EU law - had threatened to delay the final adoption of the legislation. However, MEPs agreed to retain the old comitology system - which largely excludes Parliament - for a period of two years.
If, as expected, the Basel II Capital Requirements Directive shortly receives formal approval in Europe, it will take affect from January 2007 for the standardised approaches for capital calculation, with implementation of the advanced approaches from January 2008.
In stark contrast, in a recent speech, Governer Susan Schmidt Bies of the US Federal Reserve said that the United States were in their "seventh year working on Basel II, and still several years away from full implementation."
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