European Parliament gives green light to Basel II

The European Parliament has voted to adopt the new rules governing the Capital Requirements Directive, which will implement the Basel II framework in the EU.

The Basel II capital Accord aims to govern the minimum level of capital that investment firms and credit institutions must hold against their exposures. It includes provisions for the management of operational risk in addition to market and credit risk and was developed by the Basel Committee for Banking Supervision.

“A recent study estimated that banks would have reduced capital requirements of about €80 billion to €120 billion as a result of the proposed directive,” said Charlie McGreevy, the commissioner for Internal Market and Services, in an address to members of the European Parliament.

The approval clears the way for member states to formally adopt the proposals at the end of the year, which must be ratified by the European Council of finance ministers. It should then take effect from January 2007, which should see implementation of the standardised approaches for the calculation of capital, and the advanced approaches implemented 12 months later.