Agreement on New Capital-
Adequacy Rules in the EU

Political agreement on the proposed directive for new capital-adequacy rules (Basel II) was reached by the European Parliament on 28 September 2005 and subsequently by the Ecofin Council on 11 October. The negotiations took place according to the co-decision procedure through which the Parliament and the Council reached agreement on amendments to the proposed directive tabled by the European Commission on 14 July 2004^[1]. Technically, the new capital-adequacy rules for credit institutions and investment firms will be implemented in EU regulation by revision of the two existing directives in the area, the Consolidated Banking Directive (2000/12) and the Capital Adequacy Directive (93/6). The proposed directive complies with the Basel Committee's revised recommendations for the capital requirements to be imposed on credit institutions by supervisory authorities^[2]. A preliminary version of the Directive is available at the Commission's website^[3]. The final version, reviewed by the European Commission's legal and linguistic experts, is expected to be published in March-April 2006 and will be formally adopted by the Council then. The directive is to be transposed into national legislation in the member states effective from the beginning of 2007. However, financial institutions will have an option to apply the existing capital-adequacy rules ( Basel I) until the end of 2007. The most advanced methods for calculation of the minimum capital requirement cannot be applied until 1 January 2008.

The Basel Committee has launched its Fifth Quantitative Impact Study (QIS5), which runs until December 2005. As in the previous Quantitative Impact Studies, parallel data collection takes place in most EU member states, but not Denmark . The results will be used to determine the final calibration of the formulae for the advanced methods for calculation of the minimum capital requirement. In practice, it is a question of determining a scaling factor to ensure an adequate level of the capital requirement.

Implementation in the USA

On Friday, 30 September 2005, the US federal banking supervisory authorities^[4] issued a joint press release stating that the introduction of Basel II in the USA would be postponed until 2009. The postponement was based on the results of the Fourth Quantitative Impact Study (QIS4) in the USA, which showed a larger decrease in the capital requirement than expected. As regards how much the capital requirement may decline in the transitional period 2009-11, the federal authorities have also chosen to apply a more conservative limit than the Basel Committee's guidelines. Finally, the standardised approach to calculation of the minimum capital requirement for credit risks under Basel II has been revised.