the elephant in the data centre

(see below)

Bank for International Settlements press release: The Group of Central Bank Governors and Heads of Supervision, the oversight body of the Basel Committee on Banking Supervision, met on 6 September to review a comprehensive set of measures to strengthen the regulation, supervision and risk management of the banking sector. These measures will substantially reduce the probability and severity of economic and financial stress.

President Jean-Claude Trichet, who chairs the Group, noted that "the agreements reached today among 27 major countries of the world are essential as they set the new standards for banking regulation and supervision at the global level".

It looks as though the "Dynamic Provisioning" (DP) approach or technique to the computation of Bank Capital in the context of Banking Supervision is gaining the ascendancy in the UK and Europe as a solution to ensuring banks hold sufficient reserves such that a credit crisis never occurs again. In reinforcing the tripartite arrangements to Banking Supervision and Regulation in the UK, the Chancellor appears to be favoring this approach which developed in Spain and it has to be said was successful (relatively). One challenge that Dynamic Provisioning gets around is the issue of procyclicality of capital buffers, perceived to be a problem with Basel II. In effect what DP does is to integrate Basel II Pillar One and Pillar Two by making total capital explicit and transparent over the business cycle. DP requires however an econometric model of the business cycle to drive the capital estimates predicated on outlooks for default (as a function of the business cycle). This is an interesting approach since finally an accounting standard is being putatively harnessed to an econometric technique.

the 1875th meeting of the Commission
held in Brussels
(Berlaymont)
on Wednesday 27 May 2009
(morning)
 

There is nothing un-important on this page

The European Commission has adopted a Communication on Financial Supervision in Europe. The Communication proposes a set of ambitious reforms to the current architecture of financial services committees, with the creation of a new European Systemic Risk Council (ESRC) and European System of Financial Supervisors (ESFS), composed of new European Supervisory Authorities. Legislation to embody these proposals will follow in the autumn. The Commission also invites all interested parties to submit their reactions on the Communication before 15 July.