Caruana calls for more banking industry support for Basel II

The chairman of the Basel Committee on Banking Supervision, Jaime Caruana, today called for more help from the banking industry in verifying that the Basel II framework is correctly calibrated.

Speaking at the International Swaps and Derivatives Association's annual general meeting in Barcelona this morning, Caruana said the Basel Committee wanted to begin a recalibration exercise this autumn.

"We recognise that these tests and reviews will demand resources from both banks and supervisors. Yet I must emphasise that neither banks nor supervisors will be able to evaluate the calibration of the new framework - and hence its effectiveness - if banks do not participate fully and seriously in these initiatives," Caruana told delegates.

Caruana - who is also governor of the Bank of Spain - said supervisors are working to avoid any unexpected outcomes by better understanding how various jurisdictions will apply Basel II. A consistent framework would benefit internationally active banks adopting the advanced approaches to credit and operational risk. But Caruana refused to be drawn on which jurisdictions were of particular concern.

The Basel Committee chairman personally praised the progress of the joint Basel Committee and International Organisation of Securities Commissions (Iosco) working groups, which are looking at changing five trading book rules. The areas being studied include the treatment of counterparty credit risk for over-the-counter, repo-style and securities financing transactions; double-default effects for hedged transactions in both the banking and trading book; short-term maturity adjustments in the internal ratings-based approach for some trading book items; improvements to the trading book regime, particularly specific risk; and the capital treatment for unsettled and failed transactions.

Caruana said the co-operation with the banking industry, particularly on data issues, had proven very strong. "I expect the Committee will release a proposal for a six-week period of public comment next month such that the proposals can be released in final form this summer," he said. But he added that more "intensive work" would continue until early April, so he could not comment on any likely proposals by the Committee and Iosco.