The EU and Basel Committee member countries are supposed to start using advanced approaches for measuring operational and credit risks from the end of 2007, but in the US a handful of the largest banks are only due to comply with Basel II as of January 2009. This could lead to a host of problems for banks who have operations in both Europe and the US. Moreover, according to experts at InfoWatch, this could affect both the reputation and competitiveness of US banks.
The differences between the US and international versions of Basel II could create a whole host of problems for those banks with cross-border operations, for example in the US and Europe. In particular, the Institute of International Finance (IIF), an influential Washington-based organization, is very concerned about the situation and has called on financial regulators from different countries to approach the problem with more urgency.
“The so-called gap year between implementation of Basel II in the US and the European Union and other Basel Committee member countries is of concern,” an IIF representative said at a press conference in Singapore last week. The ‘gap year’ refers to the one-year difference in the timetables for adopting the advanced approaches to measuring credit and operational risks that big international banks are likely to use under Basel II. In Europe and other Basel Committee member countries, banks will be able to use advanced approaches from end-2007, whereas the small number of big US banks that are expected to operate under Basel II will start from January 2009.
“Large US banks are concerned that the adoption of advanced methods for measuring credit and operational risks will lead to excessively large amounts of reserve capital. US regulatory bodies are currently aiming for a risk management system that won’t cause an annual reduction in banking capital of more than 5% for the three-year transfer period, and consequently no more than 15% at the end of this period. Despite this, the lack of coordination between the adoption of Basel II in the US and in Europe could cause problems for cross-border banks and detract from the reputation, and subsequently the competitiveness, of US banks abroad,” believes Denis Zenkin, marketing director at InfoWatch.
Source: Global Risk Regulator
