The new capital-adequacy directive promises numbing complexity and inconsistent application in 15 separate countries.
Basle 2 must be turned into a third capital-adequacy directive (CAD 3), which may overlap with a bunch of other directives on solvency, large exposures and capital.
If Europe's new capital-adequacy directive is to be law in all EU countries by 2004, it must be drafted before that, in October this year.
For firms operating in the securities business, there are no internationally agreed minimum capital standards, although most national regulators impose rules of their own (as does the EU, through its capital-adequacy directive).
A framework for Basel 2 and its equivalent in the European Union, a draft capital-adequacy directive, is meant to be ready by the end of the year, in order to be implemented in 2004.
While that is under way, it is dangerous to translate the Basle framework (the new version is called Basle 2) into European law in the form of a new capital-adequacy directive (called CAD 3).
For instance, at precisely the time when the capital-adequacy directive came into force in 1996, regulators were busy amending an international accord on bank capital to allow banks more freedom to judge their own risks (and hence capital requirements).
There would then be two years for banks to prepare their models and reporting systems, and for the EU to pass and implement a capital-adequacy directive for banks and investment firms, modelled on Basel 2.This is a tight schedule even with the extra year, and the Basel committee is deliberately shutting out debate on "new" issues.
One product of this approach, for instance, is Europe's capital-adequacy directive, which applies common European standards to the amount of capital banks and brokers must have.The second tack the EU tried was mutual recognition of each other's regulatory regimes (and differences).
But a handful interest groups and some companies want the STB to reverse years of success and interpret "revenue adequacy" as a directive to constrain revenues of freight railroads.
That, in theory, still allows time for the European Union to draft and finalise a matching directive on capital adequacy for banks and financial firms, to be in force by January 2005.With Basel 2, bank supervisors are trying to do three main things.
