Jean-Claude Trichet: Announcement of Basel II
Opening remarks of Mr Jean-Claude Trichet, President of the European Central Bank and Chairman
of the G10 Governors and Heads of Supervision, at the Press Conference announcing the publication
of Basel II, Bank for International Settlements, Basel, 26 June 2004.
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On behalf of the G10 central bank governors and heads of bank supervisory agencies, I am pleased to
announce that we endorsed the publication of the revised framework for capital adequacy known as
"Basel II" at our meeting today.
This work, which was conducted by the Basel Committee on Banking Supervision, represents a
landmark achievement. In particular, its comprehensive approach to risk management and bank
supervision ensures that capital regulation will remain a cornerstone of safety and soundness for
banking in the twenty-first century. In the same vein, Basel II will enhance banks' safety and
soundness, thereby strengthening the stability of the financial system as a whole. That, in turn, will
improve the ability of the financial sector to serve as a source of sustainable growth for the broader
economy. I am pleased to offer this revised framework to the international community.
Today marks the culmination of nearly six years of challenging work. During those years, the Basel
Committee sought to develop significantly more risk-sensitive capital requirements that are
conceptually sound. At the same time, the Committee wanted to be sensitive to the characteristics of
markets and supervisory systems in numerous countries. For such an effort to be successful, the
Committee undertook a careful review of the existing rules and of the recent advances achieved in the
industry. It consulted widely and publicly with industry representatives, other public authorities, and
outside observers. The governors and heads of supervision believe that the Committee's efforts and
dedication have been fruitful and invaluable, and we appreciate the dedication that all Committee
members demonstrated.
Basel II builds on the solid foundation set out by the 1988 Basel Capital Accord. Indeed, the new
framework will preserve key elements of the existing capital rules. This includes retaining the definition
of eligible capital components; maintaining the general requirement that banks should hold total capital
equivalent to at least 8% of their risk-weighted assets; and continuing the basic structure of the capital
requirements for market risk that are outlined in the Committee's 1996 Market Risk Amendment.
The new framework marks a substantial step forward in creating incentives for banks to improve the
quality of their risk management. One of the most significant innovations of the new framework is that
it will allow banks to make greater use of their own assessments of risk as inputs to capital
calculations. In that vein, Basel II will provide banks with a range of options for determining their
capital requirements for credit and operational risk. This will allow both banks and supervisors to select
approaches that are most appropriate for banks' operations and local financial markets.
National authorities in the G10 countries will now continue their focus on adopting and implementing
the new framework through domestic rule-making processes. Consistent implementation of the new
framework across borders through enhanced supervisory co-operation will become a critical and
challenging task in the years ahead. We are also circulating the Basel II Framework to supervisory
authorities worldwide. We encourage them to consider adopting this revised framework at a time that
they believe may be consistent with their broader supervisory priorities and readiness. Yet we
recognise that adopting Basel II in the near future may not be the first priority for supervisors in these
other jurisdictions. They may wish to take some steps first to strengthen the capitalisation and risk
management capabilities of their banks and to enhance the quality of bank supervision.
The text of Basel II will be released today on the website of the Bank for International Settlements. As
the product of three global consultations and several quantitative impact studies, the Basel II
Framework has evolved and strengthened considerably since it appeared first in 1999. On behalf of
the G10 governors and supervisors, I would like to warmly thank all of those organisations and
individuals who contributed to the process and supported the work of the Basel Committee by sharing
their views over the years.
I welcome now the remarks of my colleague, Jaime Caruana, Governor of the Bank of Spain and the
Chairman of the Basel Committee. Governor Caruana has devoted considerable energy and efforts to
completing the work on the Basel II Framework that was launched so capably by Bill McDonough, the
previous chairman of the Committee.