In a report by the Institute of International Finance (IIF), the world's only global association of financial institutions, has called upon international regulators to coordinate their efforts to find an "urgent, pragmatic and efficient solution" to resolve issues arising from delays to the implementation of Basel II.
Whilst applauding the reaffirmation of the principle of the risk-based Basel II Accord by a number of leading regulatory authorities in recent weeks, the association is concerned that different implementation schedules have now been set for various jurisdictions and that to date there has not been clear guidance as to how the practical implications of staggered implementation will be addressed.
The IIF report says, "The industry recognises that the local implementation of the Accord in each jurisdiction will require adaptations in order to accommodate the international standard to local realities, practices and regulatory concerns. However, it is also true that adoption of inconsistent versions of the Accord in different jurisdictions not only would generate additional costly efforts for banks, but also could ultimately disrupt the successful implementation of Basel II, undermine its basic fabric and create serious level playing field issues."
The association has expressed particular concern about the variegated implementation schedule for international banks based in or operating in the US. Federal banking agencies in the US announced a few weeks ago that they intend to delay implementation of Basel II by one year and will also impose 'floors' on the reduction of regulatory capital for a period of 3 years. This revision to implementation in the US is designed to mitigate concerns resulting from the fourth Quantitative Impact Study (QIS4) which showed that a large number of banks would be able to substantially reduce their capital ratios under Basel II. Several US banking experts believe US banks are not over-capitalised and that any reduction in capital ratios could seriously impact the safety and soundness of the US banking system.
Despite the call by the IIF to coordinate implementation of Basel II, it is difficult to see at this stage how these differences can be resolved. Whilst the EU is committed to implementing Basel II and the US have announced the outline of their implementation plans, the Federal banking agencies in the US are under considerable pressure from senior US banking experts and legislators to scrap Basel II altogether in favour of a revised Basel I (known as Basel IA) only approach for all banks.
The full report from the IIF Steering Committee on Regulatory Capital, "The Implementation of Basel II", is available on their website. |
