Since it appears unlikely that a large organisation would suffer high losses  BIS Review 45/2003  3  from operational failures in many businesses or entities at once, some banks argue that capital requirements for a large and diversified firm as a whole might be less than the sum of capital requirements calculated for each individual entity. The Committee acknowledges the technical and practical challenges associated with developing and implementing AMAs for large, diversified firms. We are working to reduce unnecessary burdens on banks adopting them. While we have not made any decisions yet, this is an issue that we are still discussing actively with the industry. But we face even tougher questions if we consider the allocation of capital across not just legal entities, but also across national borders, as some have requested. This is a very difficult question to address in the Basel context. The Committee must respect the legal responsibilities charged to national supervisors in regulating locally chartered banks, branches, or subsidiaries. All bank supervisors must have access to sufficient, comprehensive and detailed information on a bank’s operational risk control structure, including its AMA, to evaluate the quality of risk management at banks they supervise. That may include a need for banks and other supervised entities to demonstrate the adequacy of their capital resources on a stand-alone basis. We are giving significant thought to the international implications of this issue, but I should caution that we may not be able to find a completely satisfactory solution at the Committee’s level.
To assist supervisors in developing and applying more consistent standards, the Committee created the Accord Implementation Group, or “AIG”, precisely to share experiences and encourage shared approaches. This group, which is chaired by Nick Le Pan, the Canadian Superintendent of Financial Institutions, has already been long at work and provides a forum for supervisors to compare notes on practical matters. As a result, we expect that supervisors will apply the New Accord more consistently at home, thereby promoting a more level playing field across countries as well. Based on the AIG’s work to date, the Committee published a paper this past August on the “high level principles for the cross-border implementation of the New Accord”. In this paper, we reiterate our view that the traditional allocation of responsibilities to home and host supervisors will continue. Cooperation will be critical to the effective supervision of institutions under the New Accord, especially considering the challenges an internationally active bank will face in receiving the initial approval to adopt, and then validate, advanced approaches to credit and operational risk at home and in host jurisdictions. Similarly, supervisors will need to find practical ways to cooperate in the evaluations of capital adequacy under pillar 2 and ongoing reviews of compliance with the minimum operational requirements of the New Accord. At the same time, Pillar 3 - market discipline - draws on the power of markets to help ensure that banks do not hold unrealistically low amounts of capital for operational risk.