27 October 2003

silicon.com - The Bloor Perspective: Recovery HR, offshoring and Basel II

silicon.com - The Bloor Perspective: Recovery HR, offshoring and Basel II: "

*That Accord*

The Basel Committee on Banking Supervision is to stick to its end-2006 deadline for the introduction of new bank capital rules, despite committing to a lastminute overhaul designed to simplify implementation of the regulatory framework. We think that is commendable - good to see the regulators are not being held to ransom by the market.

Improvements to the current framework include: changing the overall treatment of expected versus unexpected credit losses; simplifying the treatment of asset securitisation, including eliminating the 'Supervisory Formula' and replacing it by a less complex approach; revisiting the treatment of credit card commitments and related issues; and revisiting the treatment of certain credit risk mitigation techniques.

It must be understood that the recommended changes are at the more granular level but the fundamental framework and requirements are not any different - the key drivers remain. So what are these key drivers?

The most significant issue facing banks in relation to Basel II is aligning and upgrading data and existing IT systems infrastructure for completeness, consistency and integrity across the organisation. The systems to comply with Basel II requirements under the advanced approach for both credit and operational risk must be compatible with the existing IT architecture and provide suitable reporting facilities and analytics.

The second driver is governance and buy-in. Executive-level buy-in and awareness, followed by executive-level Basel II champions, must seize the initiative and remove all hurdles to a successful Basel II compliance. The role and responsibilities of each individual and department must be clearly defined to avoid confusion, especially with regard to operational risk.

Another important driver is the enterprise wide scope of the Accord. This means there is a need to bring in a risk culture across the whole organisation.

Shame on the banks that are using the delay in the publication of the Accord as an excuse not to introduce a Basel II program!

It is important to realise that Accord should offer considerable benefits over the existing system. It has brought about a greater awareness of among the businesses of their own processes, risks and infrastructure. It provides an opportunity to reinvigorate stagnant businesses."

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