3.5 Excursion: Basel II 81The E-invoice Directive^221 addresses questions relating to VAT and various
other questions. The E-invoice Directive imposes on the Member States the obli-
gation to set up a framework permitting the use of e-invoices without any prior au-
thorisation. However, e-invoices can only be used when the other party accepts the
principle of using e-invoices.
3.5 Excursion: Basel II
The Basel II framework describes a standard for capital adequacy applicable to in-
ternationally active banks (for the Basel II framework, see also Volume I). Al-
though this book’s purpose is limited to non-financial firms, some remarks can be
made, because the capital requirements of financial institutions can influence the
availability and cost of debt funding.
Capital Requirements Directive. In the EU, the Capital Requirements Directive
reflects the Basel II standards but has a wider scope. The Capital Requirements
Directive is basically applied to all credit institutions^222 and to investment firms.^223
According to the Directive, financial institutions must ensure that they “have in-
ternal capital which, having regard to the risks to which they are or might be ex-
posed, is adequate in quantity, quality and distribution”.^224
Risk exposure. The risk exposure on the basis of which capital requirements are
determined includes, in particular, credit risk, operational risk, and market risk.
Risk-weighted assets. According to the Basel II Accord, total risk-weighted as-
sets are determined by multiplying the capital requirements for market risk and
operational risk by 12.5 (that is, the reciprocal of the minimum capital ratio of 8%)
and adding the resulting figures to the sum of risk-weighted assets for credit risk.
The Basel Committee on Banking Supervision applies a scaling factor to the
risk-weighted asset amounts for credit risk assessed under the IRB approach. The
purpose of the scaling factor is to “broadly maintain the aggregate level of mini-
mum capital requirements, while also providing incentives to adopt the more ad-
vanced risk-sensitive approaches of the Framework”.^225
Credit risk. There are thus alternative approaches to the calculation of mini-
mum capital requirements for credit risk. Financial institutions may choose the
Standardised Approach, the Foundation IRB (Internal Ratings Based) Approach,
or the Advanced IRB Approach.
(^221) Directive 2001/115/EC amending Directive 77/388/EEC with a view to simplifying,
modernising and harmonising the conditions laid down for invoicing in respect of value
added tax.
(^222) Recitals 5 and 6 of Directive 2006/48/EC. For the scope of the Directive, see Articles 1
and 2.
(^223) Articles 1(1) and 2 of Directive 2006/49/EC. See also recitals 11 and 28 of Directive
2006/49/EC.
(^224) See recital 29 of Directive 2006/49/EC.
(^225) Paragraph 44 of the Basel II Accord. For transitional arrangements, see paragraphs 45–
49.