PREFACE

Bank regulation is primarily about the quantification and restriction of the level of risk which banks are permitted to take. However, it has for some time been an unfairly neglected area of law, since those who understand law are uncomfortable with the quantitative aspects of risk calculation, and those who understand risk quantification are not generally lawyers. This situation was tolerable in the 1980s and 1990s, when bank capital regulation existed as a separate discipline broadly outside the main body of regulatory law. However, today bank capital regulation is as much a part of mainstream law as the rules relating to market abuse or authorization, and lawyers must be able to find their way around it.

The current work is an attempt to provide a topographical map of the regulatory landscape. Its aim is to describe and explain the concepts involved in bank capital regulation, to set out how they fit together, and to show how they contribute to the ultimate aim of regulating risk. It is not intended to be a how to manual setting out how to perform risk capital calculationsfor that there are other and better sources. It is, however, intended to enable lawyers who are called upon to construe the concepts in the context of legal requirements to understand the purpose and the aim of the provisions which they are being called upon to interpret.

The first edition of this book was finalized in the summer of 2009, a period when bank regulation was changing rapidly. The second edition is published before the Basel III project has been finalized, and whilst the EU Capital Adequacy regime is in preparation. The defence for both editions is the samethat an author on this topic who had decided in 1999 to wait for the regime to be finalized before commencing work would not yet have put pen to paper, and would see no prospect of doing so for at least the next four or five years. The bones of the post-crisis settlement are now sufficiently well-formed to be capable of accurate description, and it is hoped that what the book loses in longevity it may gain in timeliness.

The conceptual nature of the content makes it slightly difficult to anchor the work in any particular legal system. The basic concepts which surround bank risk regulation are still determined by the Basel Committee on Banking Supervision. These are elaborated at the European level in directives, elaborated further by the European Banking Authority, and finally implemented (withat least in the case of the UKfurther clarificatory material) by national bank supervisors. In theory at least, none of this clarification alters the fundamental concept. However, it is an open (and unresolveable) question as to what extent guidance given at one tier is useful or relevant at a higher tier. Non-UK readers, in particular, may take the view that too much emphasis is placed herein on the views of the UK regulatory authorities on contentious issues. However, this can be defended on the basis that the UK is, in this area, one of the primary intellectual powerhouses of the global public sector, and even where other regulators take the view that the UK view should not be followed, it is unlikely that any regulator would take the view that the UK view should be disregarded. An apology may also be ventured for the relative disregard of US regulatory concepts in this area. At the time of writing the US was teetering on the brink of embracing the Basel regime for banks (but admittedly had been so teetering for some years) and the disregard seemed legitimate for a non-US work. Events may prove this wrong.

I should record two debts of gratitude. One is to OUP, who have put up with another round of the dog ate my manuscript excuses from me for longer than any human being should be expected to tolerate. The other is to my children, who have put up with the writing process for the same period, and to my wife, whose continued tolerance passes all understanding. Thank you.

Simon Gleeson

March 2012

Extracts from the Basel Accord and from the publications of other Basel committees are reproduced with the permission of the Bank of International Settlements. All of these documents are available free on their website: < http://www.bis.org/bcbs/index.htm >.