Banking & Capital Markets

Basel II, Eurobanks 0

Delaying the U.S. implementation of the Basel II accord has been applauded by executives in the States; their counterparts in Europe are less than ...
Janet KersnarMarch 16, 2006

Because of the constant movement of the tectonic plates, some scientists predict that the gulf between Europe and North America will be some 6,000 miles — twice its current distance — in about 250 million years. But a widening rift between the two continents is apparent in other areas now.

Take the recent decision by U.S. banking authorities to delay the implementation in the United States of the Basel II accord, set for 2008. While the move has been applauded by U.S. banking executives, who say more time is needed to study the accord’s impact, their counterparts in Europe are less than thrilled. Indeed, at a conference in Berlin, Commerzbank of Frankfurt chairman Klaus-Peter Müller groused that the decision to push the start date to 2009 “is not exactly what one would call good international cooperation.”

Müller, who also serves as president of the Association of German Banks, is not the only banker in Europe annoyed at the Americans. Others contend that delaying the agreement on capital-adequacy requirements is causing a great deal of confusion in their own implementation plans. What’s more, they claim the extra time might give U.S. financial institutions an unfair advantage over EU banks, which are sticking with the original date. For example, U.S. banks that do a lot of securitization will benefit from a reprieve in implementing Basel II, which has strict rules governing off-balance-sheet financing.

The delay also raises a host of questions about what will happen at U.S. financial institutions with businesses in Europe — and vice versa. Those questions need some fast answers given that many banks have already invested plenty of time and money in their Basel II implementations, asserts Cees Maas, vice chairman and CFO of Netherlands-based ING Group, who deems the delay “a setback in terms of creating a level playing field.”

The bigger worry, of course, is that the United States could tinker with the agreement itself. Any such changes, says Patricia Jackson, partner at Ernst & Young in London, could force banks to make wholesale changes to their information-technology systems. “Then we’re talking real hard money.”