European Union financial services update

In this month’s update on EU financial services developments we review the following: the Basel Committee’s latest proposals for banking supervision made on 16 January 2001 and the launch of the European Commission’s recent consultation on new EU capital adequacy rules; the launch of the European Commission’s consultation on the regulation of financial conglomerates on 19 December 2000; the opening of talks with non EU countries on savings taxation.

Robert Bell, Partner, Nabarro Nathanson, Lacon House, Theobald’s Road, London WC1X 8RW, Tel: 020 7524 6000 e.mail: r.bell@nabarro.com

Banking supervision

The EU capital adequacy framework is based currently on the 1988 Basel Accord and its amendments. The Accord originated with the G-10 banking supervisors in the Bank of International Settlements Committee on Banking Supervision. It has been revisited after international criticism established the need for charges to capital to account for credit risk. Increasingly the regulations have failed to capture the risks undertaken by banks and investment firms. The regime has also failed to deliver adequate incentives for prudent risk management. At worst it has served to encourage misallocation of resources and regulatory capital arbitrage opportunities.