WRITTEN QUESTION E-0643/03

by Paul Rübig (PPE-DE) to the Commission

(4 March 2003)

Subject: Research spending and Basel II

The Lisbon process stresses that technology-based firms are expected to provide a positive impetus, particularly as regards the creation of new jobs. However, in contrast to the International Accounting Standard, development activity on the part of many technology-based SMEs cannot be capitalised, with the result that these firms have a correspondingly high level of negative equity. Arrangements therefore need to be made for technology-based SMEs through Basel II which take account of the fact that the level of negative equity is not a product of poor management but of research-intensive activity.

How are research spending and operational investment treated in current internal or external rating procedures conducted by banks or rating agencies?

What consequences arise from the choice of rating procedure or from differences in the rating methods used by large or regional banks?

How high is the proportion of firms whose credit-worthiness has been increased, reduced or kept at the same level as a result of the application of Basel II?

What differences exist in this respect between various sectors and sizes of firm?

How does the Commission assess these factors? Will it draw on them in its preparatory work on the implementation of Basel II in the EU?

Answer given by Mr Bolkestein on behalf of the Commission

(10 April 2003)

The questions raised by the Honourable Member are important issues for the European economy. Credit financing for small and medium sized enterprises (SMEs), including of course technology-oriented companies, should receive a proportionate treatment under the new capital adequacy regime. This is an important issue for the Commission, which has underlined this fact already several times. Actually compared to the second consultative document, Basel has changed its proposal in relation to the treatment of SMEs significantly. The Commission will in the ongoing negotiations in Basel seek to ensure that the proportionate treatment of SMEs is maintained.

Regarding the Honourable Member's specific concerns, the new proposed Regulation(1) does not contain requirements, which prescribe institutions how to develop their rating systems and what kind of risk factors they have to take into account. The new requirements simply stress that all relevant available information must be taken into account.

Thus under Basel II as it is up to now, it remains within the responsibility of the financial institutions, which factors they take into account and how these factors are weighted in the assessment of the credit quality of their borrowers. This also applies to the question whether rating systems of financial institutions differentiate between industry sectors and the size of the company.

What will change with Basel II is the fact that, if an institute would like to use its internal ratings for the regulatory capital calculation, the responsible supervisor will now have to check the reliability of this rating system. This should improve the quality of these systems and should have no negative effect for SMEs.

The Commission would like to assure the Honourable Member of the importance it attaches to the treatment of SMEs.

(1) http://europa.eu.int/comm/internal_market/en/finances/capitaladequacy/index.htm.