Final Basel Reform proposal: delayed yet again

Last December, the Basel Committee of the Bank for International Settlements (BIS) announced that the final proposal to reform the 1988 Capital Accord would be postponed until June 2002. That date has now been pushed back further, perhaps into 2003, as the international regulatory body seeks to gather more information from the industry to determine the ultimate impact of the proposed changes on bank capital.

U.S. regulators called representatives from 20 institutions to Washington, D.C. on April 19 to underscore the importance of the current effort to measure the impact of recommended changes in regulatory capital charges on the overall level of capital held by individual institutions and the industry as a whole. Regulators want to fully understand how the proposed changes will affect absolute bank capital levels before moving forward with the release of the final Basel Reform proposal (Consultative Paper III).

Since June 1999, the BIS has released two lengthy Consultative Papers and numerous Working Papers outlining proposed changes to the 1988 Capital Accord that would make it more risk sensitive than the current flat, one-size-fits-all capital charge of 8%. To help institutions better prepare for the implementation of the new Capital Accord, U.S. regulators hope to issue interagency guidance on internal risk-rating systems by the end of 2002.

Many institutions already have made significant investments to meet the anticipated requirements of the new Accord. All banks, regardless of size, will need to improve their internal risk analysis, both to satisfy the regulators and market analysts and to remain competitive.

Now is the time to begin building the framework for an advanced internal risk-rating system. To help banks prepare for the adoption of the new Accord and upgrade their risk measurement and management systems, RMA is offering a series of two-day seminars on Advanced Risk Management (see page 78 of this issue). RMA will schedule additional seminars this fall and into next year to help ensure that its Associates are ready for the new Accord's adoption.

For the past two years, RMA's Capital Working Group, which includes representatives from 15 large financial institutions, has been working closely with U.S. regulators to demonstrate how best-practice institutions in North America use their internal risk- measurement systems to assign economic capital. The Group has submitted a substantial body of research to the regulators that illustrates the range of capital estimation practices within the industry. All of this information is available on the Regulatory Relations page of RMA's website, www.rmahq.org.

RMA will continue following the Basel Reform process closely and will work hard to ensure that the new Accord does indeed track best practices within the industry. A new Accord that is overly rigid and too prescriptive could retard, rather than promote, sound risk management policies and procedures. RMA also will continue to provide its Associates with timely information about the proposed changes throughout the process.

Basel Reform Timeline


June 1999     Consultative Paper I (Industry Comment Period)
January 2001  Consultative Paper II (Industry Comment Period)
2001-2002     Numerous Working Papers Released
2001-2002     Quantitative Impact Survey(s) Work Ongoing
2003          Consultative Paper III (Industry Comment Period)
2004          Transition to new Accord
2005          Transition to new Accord
2006          Implementation of the new Accord

[c] 2002 by RMA. Martin is director of Regulatory Relations and Communications at RMA--The Risk Management Association and executive editor of The RMA Journal. She can be contacted by e-mail at pmartin@rmahq.org.

COPYRIGHT 2002 The Risk Management Association
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