Implementation is due in 2007, but requires that banks are using Basel compliant systems and data for several years before then.
The most widely perceived benefit is an improved credit rating system, followed by improved management of operational risk. A reduction in capital requirements was only the fourth most highly rated benefit.
Amongst UK banks, progress is generally greater – but they have concerns around the cost of implementing Basel, lack of IT flexibility, and uncertainty over how the regulator will be assessing the robustness of the systems they have developed. Globally, around 10 percent of banks are still establishing their Basel teams – and in the Asia Pacific region this climbs to as high as 22 percent. Only eight percent of banks have reached the testing and validation phase of their project on credit risk (although this rises to 15 percent in the Americas).
While 46 percent of banks have reached the systems modelling stage or further on credit risk, only 33 percent have done so on operational risk. Banks are also generally planning to take a more advanced approach to credit risk than operational risk – over a quarter are intending to take the most advanced approach to credit risk, while only 11 percent plan to do so on operational risk.
Barriers
The cost of complying with Basel was seen as the biggest barrier – perhaps not surprisingly, as half of respondents said that their total Basel budget was less than $1 million. Other widely cited concerns were lack of time, lack of data for operational losses, inflexibility of existing IT systems (a concern in Europe especially) and, in the Asia Pacific region primarily, a shortage of Basel experts. Concerning Europe, Jane Leach commented “Whilst European banks are relatively ahead of the pack, they cannot afford to be complacent.
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