White Papers for Basel II Capital Accord (Basel II)

Basel II: A Worldwide Challenge for the Banking Business

KPMG

The Basel Committee specifically labeled the New Accord as “A Revised
Framework”, which provides local regulators room to determine the most
effective way to apply the recommendations in their regulatory environment.
More important, however, than the regulatory issues are the wide range of
business implications and risk management challenges that the New Accord will
trigger for banks, their non-bank competitors, customers, rating agencies,
regulators, and, ultimately, the global capital markets. For example:
• Banks will be asked to implement an enterprise-wide risk management
framework that ties regulatory capital to economic capital.
• Non-banks outside the scope of Basel II will not face its compliance challenges
but may nonetheless be pushed to use it as a competitive benchmark.
• Banks will need to collect and disclose new information and face the
implications of increased transparency.
• Rating agencies have new prominence as a result of the Basel II framework
and thus could experience new competition.
• Regulators are challenged to provide a level playing field in their jurisdictions
and internationally as the Basel Committee's recommendations are
implemented by legislatures in various countries. In addition, regulators need
to ensure that their examiners are adequately trained to assess bank's
compliance with the new capital rules.
• The global banks could experience extended trends toward increased
securitization as financial institutions adapt to Basel II requirements.
The complexity of the New Accord, as well as its interdependencies with
International Financial Reporting Standards and local regulation worldwide, makes
implementation of Basel II a highly complex project. For a bank, a project will be
driven by the structure of its business, beginning with its strategy and
encompassing its risk measurement and capital calculation methods, business
processes, data requirements, and IT systems. With a structured and disciplined
approach, banks can begin to achieve the Basel Committee's intended benefits of
enhanced risk management and lower capital requirements. Such changes, in
turn, could influence banks' strategies, customer relations, and, over time, their
business models.
With this white paper, we emphasize that while the data requirements of Basel II
are significant, the New Accord is not simply a data and information systems
exercise. Indeed, addressing Basel II's data and IT issues are means to an end,
not an end in themselves. Ultimately, Basel II's capital requirements have wideranging
implications for risk management and, thus, corporate governance.
By focusing on those aspects of the New Accord, banks can begin to benefit
from its most important opportunities.

View the White Paper

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