The capital savings are even more dramatic for SME loans that qualify for retail treatment: participating banks from Basel Committee member countries reported that their capital requirements on SME exposures qualifying for retail treatment would decline by an average of 12-13% under the standardised approach and up to 31% under the IRB approach. Similar conclusions can be drawn for those European banks participating in this study. Actually, EU banks in general reduce their capital charges for loans to SMEs compared to the current rules, and this decline is slightly stronger than the average of all banks providing data. I should note that QIS 3 did not fully recognise the risk-mitigating effects of collateral and guarantees, so we expect that, in some cases, banks may experience even larger “savings” when the New Accord comes into force. Other studies concur. For example, researchers at my home institution, the Bank of Spain, combed through a database covering almost every loan made by a Spanish bank to evaluate the potential effects of the New Accord on SME lending. Their findings, which, if you are interested, I can share in written form with you, agree that the New Accord will not create tougher capital requirements for loans to Spanish SMEs and may, indeed, reduce them. We are extremely pleased now to have tangible evidence that the New Accord will not create burdens for banks that lend to SMEs.
They create new jobs at a faster pace than larger companies do. Their significance can furthermore be measured in the sizeable contributions they make to nearly all countries’ gross national products. Your workshop today reminds us that, if we are to promote growth by strengthening the banking sector, the Basel Committee must act in a manner that benefits banks and their ultimate customers as well. We must recognise that fair and reasonable access to credit matters, not just because credit helps small businesses to grow, but more importantly because small businesses help the economy to grow. So we have taken seriously the need to ensure SMEs of continued favourable access to credit under the New Basel Accord. This afternoon I would like to share with you some of my and the Committee’s views on why the New Accord is necessary. I shall then illustrate how the proposals will bear positively on small business lending. I’ll conclude with an update on the status of our work, after which I look forward to a discussion on issues you may wish to raise. The goals of the New Basel Accord Let me begin with some thoughts on why we need a new capital accord. From the supervisor’s perspective, capital is the last line of defence in a bank. When risk management is not enough, when provisions are exhausted, capital is a bank’s last hope. But when capital fails, the bank itself fails. The age-old question has been determining how much capital is enough.