Banks Report Widespread Challenges Remain in Their Basel II Preparations, According to Global Survey
Survey by Accenture, Mercer Oliver Wyman and SAP Shows Areas of Concern and Significant Regional Differences in Preparation for Basel
LONDON, June 28 /PRNewswire-FirstCall/ -- Many of the world's largest banks see significant challenges remaining in their preparations to implement the Basel II Capital Accord, according to a global survey of banks sponsored by Accenture, Mercer Oliver Wyman and SAP.
Substantial numbers of banks surveyed remain uncertain over budgets, a lack of confidence in risk-management frameworks and economic capital systems, and insufficient progress in implementation of the credit-risk measurement tools required to meet the new regulation. Survey results indicate that U.S. and Asia-Pacific banks lag behind their European counterparts in several key areas of preparation for Basel II.
The survey of executives responsible for Basel II compliance at 97 of the world's 200 largest banks in April and May was designed to gauge how major banks worldwide are responding to the challenges of the Basel II Accord just before the announcement of final rules in late June. Basel II updates and expands 1988 capital rules for risk-management practices that align capital more closely with operational, credit and market risks for banks operating internationally.
Other major survey findings include:
-- Uncertainty on the total cost of compliance is broad, with nearly a
third of survey respondents saying they remain unsure of the total cost
of their Basel II program. Of those banks providing estimates, most
banks with assets under US$100 billion expect price tags of euro 50
million or less while nearly two-thirds of larger banks project costs
of more than euro 50 million.
-- The majority of banks said they see significant benefits from Basel II,
especially in improved capital allocation and better risk-based
-- More than 70 percent of banks surveyed are planning to adopt Basel II's
advanced regulatory approaches on both the credit risk and operational
-- Common expectations of increased competition in retail and small-and-
medium-enterprise (SME) lending, consolidation among corporate and
specialized lenders, and more selective approaches to emerging-market
The survey indicates that many banks have significant work remaining to satisfy the requirements of two of the three major elements of Basel II: setting up a risk-based supervisory structure within the bank and increasing market discipline through expanded disclosure. Nearly two-thirds (63 percent) of banks surveyed described their enterprise-wide risk management framework as poor or average. Just over 60 percent of respondents described their economic capital systems as poor or average.
Basel II will also require banks to make significant changes to their business practices. Nearly 90 percent of survey respondents say change is likely in their operational risk management processes. In addition, almost 8 in 10 bank executives say that their credit risk management processes are likely to change."