The growing importance of risk in financial regulation

15

pillars namely : Minimum capital requirements, supervisory review process and market
discipline. Even though the past years have concentrated on pillar 1, pillar 2 presents a great
challenge for banks and supervisory agencies.¹²³ In October 1995, following the collapse of
Barings Bank, which was attributed to inadequate control mechanisms, organisation and risk
management, BaFin's predecessor, the Bundesaufsichtsamt fuer das Kreditwesen circulated
the statement on “minimum requirements for the trading activities of credit institutions”.¹²⁴
BaFin gave an official statement regarding the implementation of Pillar 2 on the 15^th April
2004.¹²⁵ The foundation for this is a new circular called MaRisk ( minimum requirements for
risk management).¹²⁶

Pillars 1 and 3 are to be covered by the new solvency directive Solvenzverordnung. Section 10
(1b) of the German Banking Act will be amended with regards to pillar 2.¹²⁷ Pillar 2 not only
seeks to ensure that banks have adequate capital to support all the risks related to their
activities, but also encourages banks to develop and implement better risk management
techniques in monitoring and managing their risks.¹²⁸

Basel II goes beyond the current German bank regulations - as a result there are not only
inconsistencies, but also gaps between the regulations.¹²⁹ When comparing the minimum
requirements for the credit business of credit institutions (MaK) with Basel II Internal Risk
Based approaches, in detail, it is evident that requirements for IRB approaches are beyond
those of the MaK.¹³⁰ As a result of its higher sophistication, those ratings which fulfil IRB
requirements will also fulfill MaK requirements but the reverse is not the same.¹³¹

The minimum requirements for risk management ( MaRisk) combines the minimum
requirements for the credit business of credit institutions (MaK), MaH and MaIR.¹³² As well
as paving way for more holistic regulation, this merger should prevent further risk classes
specified in the New Basel Capital Accord.¹³³

Italy

Risk Based Approach to Bank Supervision in Italy

Supervisory activities aimed at increasing the capitalisation of banks - particularly major ones
and to manage their risks of large exposures became more of a regular practice in 2001.¹³⁴
Methods for certifying banks’ internal models for market risk calculation and related capital
charges were also established.¹³⁵

NO Angermueller, M Eichhorn and T Ramke, 'New Standards of Banking Supervision - A Look at the
German Implementation Approach for the Second Pillar of Basel II' (2005) 2 Journal of International
Banking Law and Regulation 45

Ibid p 47

ibid

ibid

Ibid p 52

ibid p 55

ibid

ibid 52

ibid pp 52,52

ibid p 54

ibid p 55

See 'Supervision of Banks and Other Intermediaries: Banking Supervision”, Bank of Italy at p 205
<http://www.bancaditalia.it/vigilanza tutela/vig ban/pubblicazioni/rela/2001/Supervision.pdf> last visited
Jan 20 2007

ibid

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