Home-host information sharing for effective Basel II implementation

Note: This consultative document has been superseded by the final version of June 2006.

This paper is being issued by the Basel Committee on Banking Supervision (BCBS) in association with the Core Principles Liaison Group (CPLG), a BCBS working group which includes representatives from sixteen non-BCBS jurisdictions. It addresses the question of information-sharing between home and host supervisors under the new Capital Framework known as Basel II). The paper is confined to Basel II implementation and does not address wider information sharing issues, since the implementation of Basel II is considered a priority in the short-term. However, work undertaken in the context of Basel II may help prepare the way for broader guidance in the future that addresses additional aspects of home-host cooperation, should that be considered beneficial.

The need to develop cross-border understandings on the application of capital standards to international banking groups is recognised as an essential element of the successful implementation of Basel II. In this respect, the BCBS has over the past few months been encouraging the home and host supervisors of the major international banking groups to discuss among themselves, and with the institutions that they supervise, the implementation of Basel II. These discussions have progressed to the stage where a number of preliminary decisions are being considered with regard to the ongoing supervision of individual banking groups, whether through bilateral or multilateral arrangements. It is important that these group implementation studies continue to make progress in the coming months and that home and host authorities build on the working relationships that are being developed to create effective cooperative mechanisms.

These discussions have confirmed the need to develop more robust information-sharing arrangements between home and host supervisors as set out in High-level principles for the cross-border implementation of the New Accord. Creating a framework for supervisory cooperation has been an objective of the BCBS since its creation, which it has promoted through the issue of successive principles governing cross-border supervision (starting from the 1975 Concordat) and more recently through its Core Principles for Effective Banking Supervision and the subsequent Methodology. A key feature of this framework is that international banking groups need to be supervised on a consolidated basis, covering all aspects of the business, domestic and cross-border. Consolidated supervision of international banking groups requires effective co-operation and information exchange between home supervisors and host supervisors and it is hoped that improvements in this area will be one of the side-effects of Basel II.

While communication between home and host supervisors is important, banks have the primary role to play in implementing Basel II and in providing relevant information to home and host supervisors to allow them to meet their responsibilities. In particular, as is stressed in paragraph 14 of this paper, the local managers of foreign branches and subsidiaries need to be kept informed of the steps that are being taken at group level to manage group capital and of the decision to adopt one or other option under Basel II. In this regard, Basel II does not diminish the legal or governance responsibilities of subsidiary bank management within the group structure.