Commission comments on Basel assessment: The Basel Committee has published its Regulatory Consistency Assessment Programme (RCAP) report on how the EU is complying with Basel III. It concluded eight of the 14 key components meet all minimum Basel standards while another four are largely compliant. However, it considered the Internal Ratings-based (IRB) approach for credit risk to be "materially non-compliant" primarily because of the way in which it treats exposures to small and medium-sized enterprises (SMEs), corporates and sovereigns. It found the counterparty credit risk framework "non-compliant" because it gives an exemption from the Basel credit value adjustment (CVA) capital charge for certain derivatives exposures. The Commission responded by endorsing international efforts to ensure coherent implementation of Basel III. It notes the EU has taken a particularly ambitious approach in deciding to apply a single rulebook to all of its 8,000 banks. It also notes its assessment as compliant or largely compliant in 12 of the 14 components the Basel RCAP assessed. It says the RCAP report pointed out national differences but all banks in the survey have capital well above regulatory minimum standards. The Commission stresses that some matters are a question of interpretation so some things identified as weaknesses may in fact be compliant. It also says the survey sampled the widest extremes of banking operations and that the vast majority of EU banks would be less affected by the prominent findings of the RCAP. Further, it notes that:

  • the RCAP report did not properly reflect the reasons for the deliberate legislative action from the EU to ensure continued access to credit for SMEs, where it noted a deviation;
  • the RCAP report did not take account of recent Basel agreed changes to the requirements for CVA risk; and
  • there was little recognition of the permitted use of transitional periods.

(Source: Basel Assesses EU Compliance with Basel III and Commission Comments on Basel Assessment)