26 September 2004

Securities Industry Subject to Basel II...

Since 1999, Basel II has been coming to a bank near you in America: "At the time, the Federal Reserve announced that the top nine banks - some of which, such as JPMorgan Chase, Citigroup and Wachovia, have brokerage businesses in addition to commercial banking arms - would have to comply and adopt the advanced measurement approach for their capital adequacy requirements for credit and operational risks."

The US securities industry including firms such as Merrill, Goldman Sachs and Bear Stearns will now be subject to BASEL II under the SEC's Consolidated Supervised Entities regime. The big question is whether the smaller brokerages will adopt the same approach to operational risk as many of the smaller regional banks have done.

To improve their operational-risk-assessment capabilities, firms are targeting three initiatives, says Dushyant Shahrawat, senior analyst in TowerGroup's securities practice: upgrading core infrastructure, including building data warehouses; using integration and business-process-management technology to improve operations workflow; and exploring newer technologies such as Web services and grid computing to improve operational-risk management.

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