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The British Bankers’ Association has made publically available its Conclusions on Pillar 3 of Basel II – the market discipline and public disclosure part of the New Basel Accord. This follows the BBA setting up a Working Party of British banks designed to reach a consensus in the interpretation of Pillar 3.
Pillar 3 aims to encourage the development of common standards for public disclosure on the scope of application, capital, risk exposures, risk assessment processes, and hence the capital adequacy of banks, with emphasis on how senior management and the board assess and manage the risks of the bank. However Pillar 3 does not go far in defining those common standards. This is left to the supervisors and the banks themselves.
These BBA Conclusions, the result of 14 banks collaborating, give consensus on the timing and level of disclosures, the publication medium and the relationship with accounting and UK regulatory reporting. The requirements of Pillar 3 are compared with the FSA’s Handbook and consensus-based recommendations made. There are still areas such as the performance of loss estimating and model validation where no consensus was reached and these are being taken up by the European Banking Federation in its discussions with the CEBS. Other areas were agreed as being subject to individual interpretation.
The BBA says its conclusions are “designed to promote market discipline by encouraging market participants to assess the capital adequacy of institutions. The BBA has been working with member banks to clarify the requirements of Pillar 3 by finding practical solutions to technical and definitional issues. The conclusions of this work are made publicly available in the hope that they will enable other banks and building societies to take convergent approaches and assist market participants to understand the nature of Pillar 3 and assumptions underlying UK institutions' disclosures.”
Banks that took part in the Working Party were the Abbey, Alliance & Leicester, Allied Irish Bank, Bank of Ireland, Barclays, Bradford & Bingley, Credit Suisse, HBOS, HSBC, Lloyds TSB, Nationwide, Northern Rock, Royal Bank of Scotland and Standard Chartered Bank.
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