Outline
         • Basel II
             –Basel II and financial stability 
             –Three Pillars of Basel II = triple protection
             –Enhanced risk management => Incentives
             –Supervisory review process (Pillar 2)
         • Implementation in the EU 
             –Role of CEBS
             –The challenges and CEBS’ response
             –Work programme
             –Publications on CRD
      José María Roldán | September 2005                                              2
       Basel II and financial stability
       •   Basel II: Rules for banks to 
           hold sufficient capital to cover 
           their risks and protect 
           depositors                              New capital           Enhanced risk 
                                                   framework             management
       •   Enhanced dialogue between                                       in banks
           the industry and supervisors 
       •   A window of opportunity in                        Financial 
           promoting consistency and                          stability
           supervisory convergence
                                                  Convergence in          Prudential 
                                                   supervisory          supervision and
                Level playing field                 practices            systemic risk
                                                        
                Financial stability
      José María Roldán | September 2005                                               3
       Three pillars of Basel II: triple protection
       •   Basel II: three pillars with 
           checks and balances                                     3 pillars
       •   Each pillar has value on its 
           own, but together they are 
           even more potent                           Minimum      Supervisory 
                                                       Capital      review and    Market 
       •   Complex in detail but clear               Requirements   evaluation   discipline
                                                                     (SREP)
           purpose and architecture                   Regulatory       +
                                                        view      Banks’ internal 
       •   Based on the best practices of                          view (ICAAP) Market view
           the industry => efficient 
           regulation from an economic 
           perspective
       •   Flexible framework for small               Credit risk
           and big banks                              Market risk  Supervisory   Disclosure 
                                                     Operational    judgment    requirements
       •   Suitable for emerging and                    risk
           developing markets 
      José María Roldán | September 2005                                                    4
      Enhanced risk management: Incentives
      •  Recognises and 
         encourages developments 
         in risk management and                  Basel II requirements
         supervisory practices
      •  Incentives to adopt more 
         sophisticated approaches 
      •  A good business tool with                Risk management
         business value (not just 
                                                                    Internal 
         costs!)                         The board                 controls, 
                                         and senior              reporting, audit 
      •  More than 100 countries        management               and contingency
                                                                   planning
         plan to adopt Basel II
     José María Roldán | September 2005                                   5
       Enhanced risk management: Pillar 2
       •    Supervisory review process (Pillar 2)
       •    Critical and integral part of the new capital 
            framework
       •    Objectives of Pillar 2 are to:
            - Ensure institutions have adequate capital to support all risks in
              their business
            - Encourage institutions to manage risk
            - Foster an active dialogue between institutions and supervisors
      José María Roldán | September 2005                                           6