The American and European banking sectors have very different approaches to the interpretation and application of the Basel II Accord. Experts at InfoWatch believe this is unlikely to lead to serious problems in practice if, of course, the US doesn’t go back on its word.
The first steps towards compliance with the Basel II Accord have brought to light a number of interesting peculiarities. According to the Financial Express, the provisions of the accord are viewed differently in America and Europe. The findings were published in a report by Standard & Poor’s Ratings Services entitled “Different wines from the same grape: Implementing Basel II in Brussels and Washington.” Although this is only a first impression, it seems clear that Basel II will not mean exactly the same in the EU and the US. The main differences are:
lending to small and midsize enterprises will require more capital in the US than in the EU; securitization exposures will be treated differently with respect to tranches rated below ‘BB-’; insurance subsidiaries will require less capital in the EU than in the US.A more detailed description of the differences can be found in the S&P report.
“The specifics of the American and European banking systems were not taken into consideration during the drafting of the accord, though that isn’t really a problem,” believes Denis Zenkin, marketing director at InfoWatch. “Any differences will be identified and ironed out in practice. The main thing is for the Americans to start applying the requirements of Basel II to their banking system, because they are still currently at the planning stage.”
Source: Financial Express
