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Banking supervisors aim for more uniform rules

ZURICH: Creating more uniform and market-friendly rules for global banking will be the guiding principles in future work by Group of 10 (G1O) supervisors, the chairman of the Basle Committee on Banking Supervision said.

Tommaso Padoa-Schioppa said banking supervision, especially outside the G10, has to be tightened to ensure that minumum supervisory standards are implemented throughout the world.

"Our rules apply directly to G10 countries, but it is absolutely necessary to have similar standards that are adopted and implemented outside the G10 for the simple reason that many banks have activities outside the G10 and can theoretically locate there," Padoa-Schioppa told Reuters in an interview.

The next international conference of bank supervisors in Stockholm in June, where supervisors from virtually every country in the world meet, will be an opportunity to check the state of bank supervision worldwide, he added.

In addition to geographically uniform rules, banking supervisors will also continue to create a level playing field by tightening collaboration with regulators of the securities industry, organised under the International Organisation of Securities Commissioners (IOSCO).

"Same business, same supervisory treatment, whether a bank or a non-bank," Padoa-Schioppa said.

But while the gap is narrowing between banking and securities supervisors, Padoa-Schioppa said there is still a long way to go before the insurance industry is included in such uniform rules as the insurance business is still very different, even though all three industries are using similar financial instruments.

The rapid evolution of new financial instruments and the global nature of deregulated markets have transformed the basic philosophy of banking supervision.

While supervisors used to rely on restraint of competition and market access, regulatory philosophy has shifted toward a more market-friendly approach that strengthens the self-defence mechanisms of firms and markets.

"We need to continue the evolution towards what I call market-friendly supervision, namely supervision that works with the market rather than against the market," Padoa-Schioppa said.

Illustrating this new approach, the Basle Committee last year extended the 1988 Capital Accord to market risks from credit risks. Banks will now have the option of using their own risk management systems to calculate capital charges for supervisory purposes.

In addition to implementing the amendment by late 1997, Padoa-Schioppa said supervisors will give close attention to the areas of derivatives and disclosure.-Reuter