although it may lead to the realisation that regulation should not be perceived as a burden, but perhaps a valuable asset! on 1 january 2005 the eu ’ s new accounting regulation comes into force. it introduces the international accounting standards ( ias ) and will also affect the banks ’ financial statements. the fact that - in the special eu version - it also poses some particular problems for mortgage - credit institutes should also be mentioned here. with ias, the previous danish accounting principle for financial enterprises to state securities at market value will no longer apply in every case. danmarks nationalbank regrets that under the new rules some elements of a securities portfolio can be subject to cost measurement. so far there has been agreement in denmark that market value is the most regular principle. however, this now has to defer to the need for uniform rules within the eu, where the market valuation of securities has not been consistently applied. the interplay between the ias rules and basel ii is especially significant for danish banks. so far, we have applied a prudent principle to the compilation of losses and provisions. instead, the ias rules introduce a neutrality principle for the assessment of the provision requirement. the term itself states the case : the banks must no longer be quite so prudent in their evaluation of the need for provisions. this may require substantial provisions to be carried back, reducing the banks ’ buffer against potential losses. to put it another way, the change of principle may release substantial funds in danish banks. added to this, on the introduction of the basel ii rules a reduction of the capital requirements of danish banks can be expected, since loans to households as well as to small and medium - sized enterprises are subject to a lower risk weighting under the new framework. these loans weigh relatively heavily in denmark. in overall terms, this is a considerable relaxation of the capital requirements and provisions. so it is important that the boards and managements of the various banks consider carefully how much capital they need in order to ensure an appropriate buffer in case of unforeseen adverse events. in order to promote this process, the current bill for a financial business act anticipates the basel ii framework. already in 2005 the requirement is introduced that the banks must assess their need for capital and engage in dialogue with the danish financial supervisory authority in this respect. the bill does not require the disclosure of the results of these deliberations. since these are provisional rules prior to the full implementation of the basel ii framework

bodil nyboe andersen : the significance of basel ii for danish banks speech by mrs bodil nyboe andersen, governor of the national bank of denmark, at the annual meeting of the danish bankers ’ association, copenhagen, 1 december 2004. * * * at all recent annual meetings of the danish bankers ’ association the various speakers have commented on the basel framework. this framework sets the international standards for the capital adequacy of the banking organisations. in the 1970s the g - 10 countries set up the basel committee, whose secretariat is at the bank for international settlements ( bis ). located in basel, bis is often called the central bank to central banks. in the 1980s the basel committee started its work of formulating international standards for the capital adequacy of banking institutions. in 1988 this resulted in the basel framework - now called the basel i framework. this is still the basis for the requirements of the size and structure of the capital of banking organisations in more than 100 countries all over the world. the strong expansion and increasing complexity of the financial markets and banking organisations since the basel i framework was drawn up have made it necessary to formulate a more sophisticated framework. the basel committee therefore took on the drafting of new international standards, and the first proposal was put forward in 1999. this work has proved to be more complex than expected. the committee has on several occasions issued consultative papers inviting the financial world, authorities and other stakeholders to comment on the drafts put forward. this process has been quite comprehensive, but also highly valuable, since it has given all countries and parties the opportunity to table suggestions and constructive criticism. in this way, a number of special circumstances could be taken into consideration. the consultations have by no means made the process less protracted, nor have they simplified the proposal. nonetheless, on 26 june 2004, the basel committee closed the file and reached a decision on the new international standards. the framework now fills more than 200 pages, while basel i comprised 30 pages. on the basis of these standards the european commission has put forward a draft directive for a new capital adequacy framework. the directive is expected to be adopted in 2006, and to come into force in 2007 - 2008. the new standards are of course considerably more complicated than the 1988 framework. a noteworthy departure from the current framework is that individual banks will be able to choose between two different principles for compiling the capital required to cover credit risks. larger banks may base their capital requirement on