Greetings!
Welcome to the
April, 2008, edition of the BCPA Newsletter. Our
mission is to offer a summary of news, events
and opportunities from the field of Basel
ii.
We have some
important news to share today.
Basel ii is under
attack (and gets a lot of
attention)
"Mortgage fallout exposes
holes in new bank-risk rules" - Wall Street
Journal
"Turmoil reveals the
inadequacy of Basel II" -
Financial
Times
Are they wrong?
Yes. For two reasons:
1.
Basel ii is a minimum
standard. It is not the solution to all our
problems.
2.
Basel ii is not a final rule,
of a finished framework. The Basel
Committee has designed it to be a more
forward-looking approach to capital adequacy
supervision, one that has the capacity
to evolve with time. This evolution is
necessary to ensure that the Framework keeps
pace with market developments and advances in
risk management practices.
Why
newspapers like
Wall Street Journal and Financial
Times are
wrong?
Because they all read THE (main)
Basel paper, not all the other
official Basel ii papers from the BIS
(Bank of International Settlements) that explain
the main framework. And,
there are some important developments that
didn't make the news.
For example:
A.
In December 2006,
the Basel Committee on Banking Supervision
(BCBS) established the Working Group on
Liquidity (WGL) to review liquidity
supervision practices in
member
countries.
B.
We have a new (February
2008) important paper from the Bank of
International Settlements: "Liquidity Risk:
Management and Supervisory
Challenges"
http://www.bis.org/publ/bcbs136.pdf?noframes=1
We
can read:
"The market
turmoil that began in mid-2007 has highlighted
the crucial
importance of market
liquidity
to the banking sector. The contraction of
liquidity in certain
structured product and
interbank
markets, as well as an increased probability of
off-balance
sheet commitments
coming onto banks'
balance sheets, led to severe funding liquidity
strains for some banks
and central bank
intervention in some cases. These events
emphasised the links between
funding and
market liquidity risk, the interrelationship of
funding liquidity risk and credit risk, and the
fact that liquidity is a
key determinant of the soundness of the banking
sector.
In response to the market
events, the
original mandate was expanded and the WGL
made
initial observations on the strengths
and weaknesses of liquidity risk management in
times of
difficulty"
Read the
paper! Highly
recommended.
http://www.bis.org/publ/bcbs136.pdf?noframes=1
Dear
Members,
At every stage of your
education, training and career, our association
provides information and services you can
use.
Best
Regards,
George
Lekatis
President of the Basel ii Compliance
Professionals Association
General Manager and
Chief Compliance Consultant, Compliance
LLC
1220 N. Market Street Suite
804
Wilmington, DE 19801, USA
Tel: (302)
342-8828
Email:
lekatis@basel-ii-association.com
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New
Training courses and
presentations
A.
For IT and Information Security
Professionals
B.
For Presales, Sales and
Marketing
C.
For Process Owners
D.
For the Board of Directors and Executive
Management
E.
For Clients and Prospects
F.
Basel ii Awareness
G.
Professionally Speaking.
Basel ii Keynotes /
Breakouts
More
Information:Please visit
www.basel-ii-training.com
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News
They
are developing the Basel iii (3)
framework!
"The financial world
changes all the time and those who supervise and
regulate the financial world have to be prepared
to change too. So I do not have any doubt that
soon after Basel II is in place, we will have to
start to think about Basel III.
I do not like
to say this to my colleagues in the Basel
Committee because they say "oh no, I have been
up all night for years doing Basel II". But
there is no doubt that the task will have to be
engaged"
Andrew
Crockett
Former general manager of the
Bank of International Settlements (BIS),
President of JP Morgan Chase
International
"Supervisors should, at a
minimum, be aware of the increasing
sophistication with which banks are responding
to the existing regulatory framework"
Alan
Greenspan, October 1998 (Alan Greenspan
was the chairman of the Board of Governors of
the US Federal Reserve
System)
Basel II is more risk
sensitive than Basel I but Basel III will be
better!
What is missing
from Basel II (and we believe that will be part
of the framework in Basel III?
Some
examples:
We do have a new risk,
operational risk, but...
A. Reputational risk
is not an
operational risk
B. Systemic risk (disruption
at a firm or a market segment causes
difficulties to other firms or market segments)
is not an
operational risk
C. Strategic risk (the risk
of losses or reduced earnings due to failures in
implementing strategy) is not an
operational risk
Opportunities
European
Union, Solvency ii Directive: The Basel ii
framework for insurance
companies!
Are
you working in a Basel ii project? Your knowledge
and experience will be important for the
implementation of Solvency ii in the Insurance
sector.
Solvency II is the updated set of
regulatory requirements for insurance firms that
operate in the European Union.
Solvency
ii has obviously been influenced by the Basel ii
framework. For example, we have 3 Pillars in the
insurance sector too:
Pillar 1 -
the quantitative requirements, the amount of
capital an insurer should hold.
Pillar
2 - the effective
supervision, governance and risk
management of insurers
Pillar 3 -
disclosure and transparency
requirements
(looks
familiar?)
"Solvency II is a huge project
and challenge for the EU, and, a
great
opportunity"
UK
FSA
Implementation
is expected around
2010.
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