Contenu du sommaire : Bâle II: Genèse et enjeux

Some lessons from history : the birth of prudential regulation between 1800 and 1945 We describe and comment the birth of prudential regulation in England, Germany, France and the United States between 1800 and 1945. We assess whether the different regulations experimented during this period were successful in preventing financial crisis. This historical analysis permits us to draw some lessons concerning different aspects of the second Basel accord. More precisely, we focus on the four following points : 1) The evolution of capital and reserve requirements and of deposit insurance schemes in the United States, in England and in Germany ; 2) private and public banking supervision in the United States ; 3) Market discipline in the United States ; 4) Structural characteristics influencing the efficiency of prudential regulation in the United States, in England, in France and in Germany. JEL classifications : E44, G21, G28, N23, N24

From the Cooke ratio to Basel II The Cooke ratio aimed ta stop the international banking equity capital's erosion. It becomes the universal reference of banking regulation thanks ta a simple methodology and strong principles. So, increased complexity of risk measurement, management and hedging highlighted its limits and its needed reform. With a risk's sensitivity and a real flexibility, Basel II is now the base of a new prudential regulation really adapted to the diversity and the complexity of banking businesses, This new framework don' t show the end of the prudential regulation' s history which will continue ta evolve with the dialogue and the thought with the banks. JEI classification : E44, G2I, G28

Winners and losers resulting From the implementation of Basel I Not long after the implementation of Basel I in 1990, several countries experienced sharp declines in bank lending and weak aggregate economic growth. Several commentators attributed the decline in bank lending to the implementation of the original Accord. Academics even suggested that under certain conditions, the Accord might increase the risk in bank portfolios. This article is a look-back at that debate with the objective of determining who might have been the « winners » and « losers » resulting from the Accord. There are two fundamental questions to keep in mind in reading this review. Firstly, do restrictions on bank leverage via capital regulation lead banks to increase or decrease portfolio risk-taking ? Secondly, what is the interaction between risk-weighted capital regulation and deposit insurance, and the safety net more generally ? The answer to both questions helps determine an assessment of the efficacy of the 1988 Accord and its allocative consequences. JEL classification : E44, G21, G28

The new framework and the consequences of the new rules The main aim of Basel II is to encourage banks to improve their ability to measure and manage the risks to which they are exposed. To that end, regulatory capital requirements are being aligned with industry best practices. As the new rules need to be applicable to a wide range of institutions, the Basel Committee has developed several options for each type of risk. Basel II will thus be more flexible, more forward looking and better able to adapt to financial innovations. The new framework should neither raise nor reduce the overall level of capital within banking systems. It is based on three pillars which are mutually reinforcing : quantitative requirements, supervisory review tailored to the risk profile of individual institutions and significantly enhanced public disclosure. Comments received have focused particularly on the potentially procyclical nature of the New Accord, on emerging market access to international capital and on the relative complexity of the New Accord. JEL classification : G21, G28

Basel II : which conditions to succeed ? The Basel Committee's reform and the EC's reform of the capital adequacy directive renew prudential regulation. Although prudential rules aren't subjected to the same rules as international competition, their development will influence banking businesses and competition. The author analyses how Basel II and its European or American implementations will change competition in the financial sector. Basel II is an essential reform which improves financial stability. It allows to really appreciate banking risk management. Success will arrive if a real competition between all international banks exists. JEL classification : G15, G21, G28

From Basel to Brussels : the European right on capital adequacy implementation The complexity of the capital adequacy directive adoption and the need of strong and consistent majorities should change the Basel rules. Basel committee and EC have conducted several impact studies of these rules. These studies allowed maintaining a strong convergence between the two projects. However, Basel rules will apply to bigger credit institutions, since the European directive should apply to the whole banking system in Europe to provide the same market conditions for the firms in the Single market. But the implementation should be adapted for small - and medium - sized banks. The directive should also specify the role of regulation authorities concerned by European group established in different countries of the European Union. JEL classifications : F33, F36, G21, G28

Challenges of solvency ratio's reform Basel II aims at better risk management. Banks will have to show to their regulators but also to the financial markets that they know their risks and behave accordingly. The reform means strong commitments from banks and regulators. Banks will have to invest heavily and bend their strategy to the new risk hierarchy. Capital optimizing will be easier for those with strong expertise in risk measurement and monitoring. Changes in lending and marketing policies are deemed to occur ; the financing of the economy will hence be affected. The judgment and skills of the regulators will be much in demand and will be the only way to avoid the bureaucratic drift which may be implied by such a sophisticated regulation. Their capability to coordinate their action will be critical to the level playing field conditions and, from the banks' point of view, to a cost-effective implementation. Support from all the actors is therefore necessary. An effective coordination with the IASB is also considered as an absolute necessity. JEL classifications : E44, G21, G28, M41

The impact of Basel II on the strategy of bank The impact of Basel II on the strategy of banks must be seen as a sequel to Basel I : by setting a uniform minimum price for bank credit, in terms of the equity required to support it, Basel I has created a price umbrella which allowed massive disintermediation of finance during the 90's. Regulatory arbitrage has led the banks to transfer parr of their risks to insurers and hedge funds. With Basel II, the pricing of bank credit will be closer to market references. This, plus the unfavorable market valuation of investment banking activities, may induce a return to balance sheet financing by the banks. Basel II will also create new arbitrage opportunities for the banks in managing their risk portfolio, and a strong incentive to strengthen their internal risk evaluation functions. JEL classifications : D4, G21, G28

The impact of Basel II on the strategy of bank The impact of Basel II on the strategy of banks must be seen as a sequel to Basel I : by setting a uniform minimum price for bank credit, in terms of the equity required to support it, Basel I has created a price umbrella which allowed massive disintermediation of finance during the 90s. Regulatory arbitrage has led the banks to transfer part of their risks to insurers and hedge funds. With Basel II, the pricing of bank credit will be closer to market references. This, plus the unfavorable market valuation of investment banking activities, may induce a return to balance sheet financing by the banks. Basel II will also create new arbitrage opportunities for the banks in managing their risk portfolio, and a strong incentive to strengthen their internal risk evaluation functions. JEL classifications : D4, G21, G28

What tools for effective regulation of the third party asset management's operational risk ? This article exposes first the economic importance of the third party asset management and presents reasons justifying its regulation. The author analyses particularities of this job and particularly rules contributing to the ex ante protection of investors. In the fourth part, author describes capital equity's calculations according to the activity and highlights the problem of the non articulation between Basel rules and European directives. The capital equity requirements depend on several factors. So, the fifth part reveals the parameters are far too big and the moderating role of the insurance as operational risks. The author concludes on current investors' protection and on the minor role of a regulation based on capital equity. JEL classifications : G23, G28

Basel II and private equity Banks have no stake in investing in private equity. What do €5 or €6 billion represent for French banks compared with outstanding credits ? Conversely, banks equity contributions to private equity are a major stake. The risk is high that the Basel II recommendations will reduce by substantial amount banks asset allocations to private equity, thereby reducing small and medium-size companies financing. The reason is that private equity is their primary source of equity. This is all the more regrettable that these recommendations derive from an absence of knowledge of the realities of the private equity business as well as of the actual risk of this activity. JEL classifications : G24, G28

Prudential regulation and market discipline Market discipline is considered a fundamental element of on-going reforms of banking regulatory supervisory systems. This article aims at clarifying the logic of the main theoretical arguments in favour of market discipline and reviewing the main empirical tests of these arguments. JEL classifications : E44, G28

Monetary policy, bank capital and market liquidity The implementation of the Basel II Capital Accord highlights the role of bank capital in the conduct of monetary policy. The paper studies the three types of instances that central banks may face. In normal times, the distribution of bank capital across institutions influences the transmission mechanism of monetary policy (the « bank capital channel »), as confirmed by evidence available for a certain number of countries. During financial crisis periods, when systemic risk prevails, the existence of capital requirements does not preclude the ex post intervention of central banks as Lender of Last Resort, particularly in order to prevent liquidity crisis in interbank markets or to limit their effects. Finally, in the case of lasting difficulties in the banking sector hampering the functioning of monetary policy, the issues of the recapitalization of insolvent institutions by the government and of the provision of excess liquidity by the Central Bank need to be raised. JEL classifications : E5, G21, G28

Consequences of the accounting and prudential reforms for the strategic and operational management of banks As the bank supervisory authorities continue their work on the reform of capital requirement standards for the banking industry, the IASB is preparing a new primary basis of accounting for the preparation of the consolidated financial statements of listed companies. Even though these reforms initially seem to have their own application, they are derived from a number of corn mon principles. To comply with both frameworks, banking institutions shall significantly upgrade their existing risk management and accounting systems. Accordingly, certain banks will be able to improve their organizational performance through the acquisition of new tools to better manage their activities. Financial communication is a key aspect of these reforms, and, in particular, the publication of a more detailed risk analysis as required by the Basel Committee. This article highlights the new areas of overlapping of the future communication requirements and banking institution management decisions. JEL classifications : G21, G28, M41

Methodological issues : the operational risk The validity of the operational risk (OR) focused in the Basel II reform is now accepted by financial industry. Beyond major disasters that can explain its integration into pillar I, OR management allows to assure banking results and to manage internal process, market systems and interactions with third party. The author exposes first a description of the OR and analyses its management in the banking sector. He describes issues raised by its measurement and its hedging by insurance. JEL classifications : G21, G28

Credit rating agencies and Basel capital reform proposal : a subordinated but significant role The explicit introduction of credit ratings into the bank solvency regulatory framework is a key feature of the Basle Committee proposals. Following extensive consultations, the initial proposals have been reviewed and the role of credit rating agencies (CRA) substantially re-focused with increased emphasis on internal rating systems developed by banks. Nevertheless CRA will continue to have a meaningful role in the new regulation and as benchmarks for developing internal rating systems. Analysing relationship between CRA and reform proposal implies a short description of relationship between standardized approach and internal rating systems. This article deals with adjustment of rating scales developed by CRA for mapping them out into the new regulatory framework and with issues that have been shelved. JEL classifications : G28

Japanese banks solvency : description and challenges Since 1990, Japanese banks have had serious financial problems. The large amounts of non performing loans and the decreasing value of the stock and real estate markets have caused heavy losses that have undermined the financial soundness of Japanese banks. Anyway, under the pressure of the financial authorities, the Japanese banking system has managed to survive without fundamental changes and the current restructuring process in which mega-banks are engaged has not been achieved yet. This article shows that the fiscal year 2003 may be crucial for the Japanese banking system. The level and the quality of its equity capital are getting dramatically lower. Capital adequacy ratios of megabanks are still above 8%, due to the decrease of balance sheets, but the stability of the Japanese banking system mainly relies on the regulations that provide public guaranties and fundings in case of need. JEL classifications : G21, G28, O53

Banking capital regulation in developing countries This article deals with the efficiency of capital regulation in controlling banking risks in developing countries. We point out that the simple transposition of prudential standards elaborated in developed economies encounters difficulties in these countries. Then, we wonder about the implications of the New Basel Accord for developing countries. On the one hand, we consider that the external rating approach seems to be the only alternative, but rather an imperfect solution. On the other hand, the adoption of the new Accord may affect the channels of financing in these countries. On the whole, we suggest that the transition towards the new agreement has to come along with some additional measures. JEL classifications : G12, G18, G21

From Basel II to Basel III : challenges and issues of Basel capital reform The Cooke ratio reform became essential to stop the arbitrage phenomenon and its destabilizing effects on the banking system. The author explains the foundations of the Basel capital reform. The Basel committee based its analysis on recent developments of credit risk model to fund the new ratio. The author exposes the interest of credit risk models in calibrating Basel II ratio. He highlights last issues and analyses interest of internal rating systems. JEL classifications : G21, G28