| Banking: Agreement reached at last on Basel Accord |
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| Consensus has finally been agreed on the new international capital standard, Basel II, with the new accord to be published at the end of June, and the standardised and foundation approaches to be implemented as of 2006. |
FFollowing agreement on outstanding issues by the group of central bankers and regulators who make up the Basel Committee on Banking Supervision on Basel II, the framework for the new capital accord will be published at the end of June. The text will serve as the basis for national rule-making and approval processes to continue and for banking organisations to complete their preparations for Basel II’s implementation.
The Accord represents a major revision of the international standard on bank capital adequacy that was introduced in 1988. It aligns the capital measurement framework with sound contemporary practices in banking, promotes improvements in risk management, and is intended to enhance financial stability.
While the standardised and foundation approaches will be implemented from year-end 2006, the most advanced approaches won’t be implemented until year-end 2007, as the Committee feels that one further year of impact analysis/parallel running will be needed for these approaches.
The outstanding issues included specifying a treatment for revolving retail exposures and resolving the measurements required for ‘loss-given-default’ (LGD) parameters for banks that adopt one of the internal ratings-based (IRB) approaches to credit risk. Members also discussed the calibration of the framework and ways to uphold the Committee’s objectives to maintain broadly the aggregate level of the minimum capital requirements, while providing incentives to adopt the more advanced risk-sensitive approaches of the new framework.
The Basel Committee, established by the central-bank Governors of the Group of Ten countries at the end of 1974, meets regularly four times a year. It has about thirty technical working groups and task forces which also meet regularly.
The Committee’s members come from Belgium, Canada, France, Germany, Italy, Japan, Luxembourg, the Netherlands, Spain, Sweden, Switzerland, United Kingdom and United States. Countries are represented by their central bank and also by the authority with formal responsibility for the prudential supervision of banking business where this is not the central bank. The present chairman of the Committee is Mr Jaime Caruana, Governor of the Bank of Spain, who succeeded Mr William J McDonough on 1 May 2003. |
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| Article appeared in the May 2004 issue.
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