The European Parliament has approved two draft Directives that will incorporate the recently agreed Basel II Accord into the European Single Market. Basel II overhauls the banking industry's approach to risk management.
The overall aim is to create a more sophisticated and risk sensitive approach to capital requirements used by banking regulators, better reflecting the complexity and diversity of today's financial markets. This, it is hoped, will ensure a better regulatory underpinning for the stability of the financial system and a more efficient use of capital.
The Commission published its proposals – known as the Capital Requirements Directive, albeit actually in the form of two Directives – in July. Following discussions with the Commission and Council of Ministers, the drafts have been extensively amended by the European Parliament, but are now expected to breeze through the remaining legislative formalities.