The Commission wants to introduce Cad 3 for all banks and investment firms in the 15-nation EU by late 2006, the planned date also for the implementation of the Basel II bank capital adequacy accord.
Cad 3 is closely modelled on the complex and risk-based Basel II accord, designed by global banking regulators to apply in the first instance to the large, internationally active banks of the world’s leading economies. Basel II will determine how much of their assets the banks must put aside to act as a cushion to absorb losses from banking hazards, including credit risk.
EU member-state Germany threatened to veto Basel II if it penalised lending to SMEs – regarded as the growth engine of the country’s economy – by requiring big banks to set aside more protective capital to guard against the risks of lending to such companies.
Germany lifted its objections in July after the Basel Committee on Banking Supervision, the architect of Basel II, agreed a compromise whereby capital charges on bank loans to SMEs would on average be 10% less than for loans to large firms.