Wednesday, July 14, 2004

Basel II - The Opportunity

Some might think the Basel Capital Accord (Basel 2) is a costly new set of regulations set forth by nervous bank regulators under pressure from special interest groups and governments. Basel 2 sets forth regulations requiring banks to examine and address internal and external risks — specifically operational, credit and market risks. It further requires a financial institution to have a minimum amount of capital to cover these risks should it be compelled to meet its financial commitments.

Basel II was designed to prevent banks from going broke after taking bad risks or if facing a hostile operating market. Among the prompts for updates to the original 1988 Accord was Nick Leeson's role in the collapse of Barings Bank in 1995. Mr. Leeson secretly accumulated hundreds of millions of pounds in losses from risky futures and options trades; these losses ultimately toppled the bank.

There's no doubt that implementing the tools and processes necessary to comply with Basel 2 will cost banks money.

But I'm wondering: where is the opportunity here?

No doubt, sophisticated, comprehensive and accurate risk systems will help to achieve a more efficient capital utilization, and far less risk. But what other benefits do you expect?

3 Comments:

Anonymous Basel II said...

Hi,

As far as I know, Basel draws a demarcation line between the smallers bank and Bigger bank. Because clients which are not able to meet the guidelines of bigger bank can easily approach the smaller bank..

Please clarify me if I am wrong..

7:09 PM  
Anonymous Anonymous said...

Basel II is a best practice. It is an Accord, not an Act. A general framework that gives many levels of freedom to national supervisors.

The Basel Committee does not possess any formal supranational supervisory authority, and its conclusions do not have legal force.

Everything depends on the country.

A. G-10 countries have to do more. They have signed the Basel ii framework, and their banks have to work hard to implement it. There are important differences from country to country.

B. Non-G-10 countries have usually to do less - they have volunteered to comply with Basel ii, to persuade the world that they meet international standards. It is an important choice for them, and some use compliance as a competitive advantage.

We do not have to comply with "Basel ii", but with our national interpretation of Basel ii. Our supervisors must be convinced that we meet the minimum international standards.

Best Regards,

George Lekatis
President of the Basel ii Compliance Professionals Association (BCPA)™
General Manager and Chief Compliance Consultant, Compliance LLC
1200 G Street NW Suite 800, Washington DC 20005, USA
Tel: (202) 449-9750
Email: lekatis@basel-ii-association.com
Web: www.basel-ii-association.com
HQ: 1220 N. Market Street Suite 804, Wilmington DE 19801, USA
Tel: +1 (302) 342-8828

11:15 PM  
Anonymous Anonymous said...

Need a help from the group on the following

Is the "General Risk Based Rules" currently in Vogue in USA ( Not Basel 1A) is exactly same as Basel I accord 1988 or there has been any US specific modifications.Where can I find the General risk based capital framework document.I have searched FED, OCC,FDIC site but not able to retrieve the current document

9:07 PM  

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