The composition and practices of supervisory colleges are confidential. However, the Basel Committee’s good practice paper states that the home supervisor should periodically notify host supervisors and the Basel Committee of the structure of the college and relevant participants. It remains unclear what is actually the objective of the notification to the Basel Committee. Over the summer of 2009, the Basel Committee performed a survey on college arrangements and practices in the banking sector. The International Association of Insurance Supervisors (IAIS) undertook a similar exercise in the insurance sector. Unlike the IAIS, the survey results for the banking sector were not published but formed the basis for the Basel Committee s good practices paper.

# **Box 2: Supervisory Colleges in the European Union**

EU banks operate in a more closely integrated political and legal framework, and the extent of financial market integration and cross border banking is more developed than in the rest of the world. The state of affairs of supervisory colleges, and cross border supervision in general, in the EU is thus fundamentally different.

The EU also has a legally binding framework for home host cooperation among supervisors. This legal framework is implemented by a set of principles, guidelines and written agreements allowing common sharing and delegation of tasks, common risk assessments and conflict resolution processes. It includes exchange of information, cooperation in emerging situations and even some joint decision making. Indeed, Article 129 (3) of the revised Capital Requirements Directive requires that the consolidating supervisor (generally the home supervisor) and supervisors of subsidiaries involved in the supervision of a cross-border banking group do everything within their power to reach a joint decision on the application of the Pillar 2 provisions related to the Internal Capital Adequacy Assessment Process and to the Supervisory Review and Evaluation Process. The joint decision should cover the adequacy of the consolidated level of own funds held by the banking group with respect to its financial situation and risk profile, as well as the required level of own funds above the regulatory minimum, applied to each entity within the group. These tasks should be carried out within each college of supervisors established in accordance with the CRD and operating under the framework developed by the European Banking Authority (EBA).

Despite these arrangements being in place during the global financial crisis, in some instances national supervisors have still struggled to coordinate actions. An example is the case of Fortis<sup>1</sup> . In other cases, such as Dexia, joint solutions were reached. In the wake of the financial crisis, the EBA, and its predecessor agency the Committee of European Banking Supervisors (CEBS), have taken a pioneering role in promoting and enhancing cooperation by establishing good practice guidelines on the operational functioning of colleges. CEBS has strengthened its guidelines for the operational functioning of colleges and issued guidelines for the joint risk assessment and joint decision on the risk based capital adequacy. Also, EBA observers attend the meetings of supervisory colleges. In accordance with article 131a of the amended Capital Requirements Directive, all EEA cross border banking groups should now have a college of supervisors in place. In October 2010, CEBS published a detailed peer review. About 17 supervisory colleges were reviewed. Although much work is still to be done, the results were encouraging.

1 The Benelux governments initially provided capital injections to their respective local Fortis banks. When this failed to calm the markets, the Dutch government bought the Dutch arm of Fortis, and the solvent Belgian and Luxembourg arms were sold to BNP Paribas.

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