The implications of adopting EU directive 2000/12/EC and Basel II in the local banking sector

Abstract

As from 1st May 2004, the date Malta formally joined the European Union, changes in all legislation in order to combine the EU laws within the already existing Maltese legislation, have to be effected. This is due to the fact that the EU emphasizes the concept of a Single Market. The concept of a single market consists of the promotion of the harmonious development of economic activities1 amongst others. As an integral part of a country's economic activity, the banking sector must also be considered within this definition of the single market. Therefore to apply the concept of a single market in the banking sector, one must have common laws and regulations to govern the banking business. Harmonisation Harmonisation of national laws can enhance the efficiency of prudential and protective regulations and help create conditions of competitive equity among international banks established in countries with different regulatory systems. Harmonisation may result from binding rules issued by an international organisation to which the parties to the regime have delegated authority. It can also be the by-product of non-binding agreements respected by the competent authorities of the countries concerned. Harmonisation can be of two types, namely: full harmonisation, covering all aspects of a relevant issue, such as when considering all aspects of prudential regulation, or limited-scope harmonisation, covering some of its aspects only, such as when considering aspects related to capital adequacy regulation.