Handbook of Asset and Liability Management: From models to optimal return strategies

24

Basel II Regulation and Solvency II

La mesure est la meilleure des choses. (Vléobule de Rhodes)

24.1 COMMON REGULATORY RISK CONSTRAINTS

In ALM activity, regulators tend to play a larger role year after year.

Regulation depends on the country. In the banking sector, the major regulators are, for example: FSA in the UK, “Commission Bancaire” in France, SEC in the US and the Office of Thrift Supervision (OTS) for thrifts in the US.

At a higher level, international regulatory organizations coordinate regulation across countries such as the Basel Committee or the CEBS (Council of European Banking Supervisors) in Europe.

The aim of regulation is to provide stability in the market: customers, government and even market players need this stability.

This leads to a transparent market where market players have nothing to worry about since they are treated equally.

For financial analysts, regulation allows easier risk exposure comparisons.

To perform such a transparent regulation in a market that changes every day, an intensive dialogue takes place between the regulators and the industry. This dialogue is driven by the maximum of flexibility in order to avoid every kind of misunderstanding.

Regulation creates incentives for an improved risk management development in industries that would sometimes prefer not to spend too much money in non-commercial activities (i.e. in financial risk management).

With regulatory pressure, risk management obtains enough power to follow business evolution ...