High-level principles for the cross-border implementation of the New Accord

The Basel Committee recognises that the New Accord will require more cooperation and coordination between home country and host country supervisors, especially for complex banking groups. The New Accord will accentuate the need for cooperation because the new rules will be applied at each level of the banking group, so that there is a technical requirement on the part of both home country and host country supervisors to provide a Pillar 1 and Pillar 2 assessment. In addition, there may need to be some coordination regarding Pillar 3 requirements. Consequently, the Basel Committee encourages supervisors to elaborate further on the practical implications of the Basel Concordat (see below) for the implementation of the New Accord.

Where a banking group has operations in at least one country other than the home country, the implementation of the New Accord may require it to obtain approval for its use of certain approaches from relevant host country supervisors on an individual or sub-consolidated basis, as well as from its home country supervisor in respect of consolidated supervision. The need for approval of more than one supervisor is not a precedent; the 1996 Market Risk Amendment entailed similar requirements. However, the New Accord could significantly extend the scope of such multiple approvals and is therefore likely to create some new implementation challenges.

Closer cooperation between supervisors can assist the implementation efforts of both supervisors and banking groups. There are a variety of supervisory responsibilities under the New Accord, including: (1) initial approval and validation of "advanced" approaches (eg IRB, AMA) under Pillar 1; (2) the supervisory review process under Pillar 2; and (3) ongoing assessments to verify that banking groups are applying the New Accord properly and that the conditions for "advanced" approaches continue to be met. The degree and nature of cooperation between supervisors may differ across these different supervisory responsibilities. Whatever arrangements are employed, banks have an important role to play in assisting the effective and efficient cross-border implementation efforts of supervisors.

While arrangements for cooperation among supervisors must be practical, the Basel Committee has a clear interest in implementing the New Accord in a way that strengthens the quality of bank supervision across countries. The Committee should also promote the ability of all host supervisors, and especially of those from emerging market economies, to exercise effective host banking supervision over foreign institutions operating in their jurisdictions.

The Basel Committee believes that fostering closer practical cooperation between supervisors is essential to implement the New Accord as effectively and efficiently as possible.