http://www.ibtimes.

com/articles/61506/20100913/factbox-reactions-to-
basel-iii-bank-capital-rules.htm

Factbox: Reactions to Basel III bank capital rules

Read more: http://www.ibtimes.com/articles/61506/20100913/factbox-

reactions-to-basel-iii-bank-capital-rules.htm#ixzz1DN6c9gnv

September 12, 2010 4:40 PM EDT

Banks will have to more than triple to 7 percent the amount of top quality
capital they hold to withstand future shocks, global regulators and central
bankers agreed on Sunday.

The agreement, known as "Basel III," will force banks to set aside far more
capital to withstand market shocks in future in a bid to lessen the need for
bailouts by governments seen during the financial crisis.

Following are official reactions and statements issued after the agreement:

MOHAMED EL-ERIAN, CO-CHIEF INVESTMENT OFFICER, PIMCO

"The phasing-in period for the new capital requirements is surprisingly long,
which will add to the skepticism about the robustness of the bank capital
enhancement efforts."

SIMON HILLS, DIRECTOR, BRITISH BANKERS ASSOCIATION

"I think it's broadly in line with what we expected.

"The question is how much monitoring there will be while the changes are
being introduced. It's important there is ongoing monitoring and
reassessment to make sure it's doing what we expect it to do and not have
any unintended consequences we are nervous about.

"It looks like a good step toward increasing resilience of the banking system.

"What is important is that the Basel Committee starts work now to make
sure there are globally accepted policies and procedures in place to make
sure these rules are implemented in a harmonized way.

"I think the banking sector can live with this deal. The capital conservation
buffer is a bit lower than we had feared.

1
"There has been a tremendous focus on getting this done quickly and it has
been done to the G20 timeframe which is why we need this ongoing
monitoring and ability for mid-course corrections."

CHRIS WHEELER, ANALYST, MEDIOBANCA, LONDON

"It is clear that as a result of concerns about the anemic economic

environment, Basel is trying to balance the need for tougher regulation with
supporting the banks' inevitable role in the recovery. Hence the long
implementation time frame."

DANIEL ZUBERBUEHLER, VICE CHAIRMAN, BOARD OF DIRECTORS, SWISS

REGULATOR FINMA, ALSO A MEMBER OF BASEL COMMITTEE

"This will enable them (banks) to withstand larger shocks without relying on
government support. As a result, the global financial system will be more
resilient to shocks.

"In light of the current crisis that highlighted the fragility of the banking
sector such a reform was indispensable. To make sure that their
implementation supports economic recovery, capital and liquidity
requirements will be introduced gradually over the next decade.

"The FINMA and SNB strongly support these efforts.

"At the domestic level, we remain confident that the commission of experts
can build on today's agreement and submit a set of proposals to the
government. It is our responsibility to do all we can to ensure that in the
future:

* systemic banks will be significantly more resilient than the other banks

* they have incentives to reduce their systemic importance

* the resolvability of large banks with cross-border activities is facilitated"

PHILIPP HILDEBRAND, CHAIRMAN OF THE GOVERNING BOARD OF THE

SWISS NATIONAL BANK (SNB)

"The reform package will ensure that, going forward, banks will hold much
larger buffers of higher quality capital and liquidity. This will make the global
financial system more resilient to future shocks. Gradual implementation of
the new standards will support the economic recovery.

"While the reform package is far-reaching, it does not yet comprehensively

address the TBTF ("too big to fail") problem. Further efforts will be required
in that area at the international and at the national level.
2
"For Switzerland, the Basel III reform package provides a solid foundation
on which to build a comprehensive national regulatory response to the TBTF
problem."

UBS

"UBS took note of the recommendations issued by the Basel Committee

today. The Basel Committee set the international minimum standards, which
have to be implemented by national regulatory authorities.

"For UBS the relevant standards are mainly set by the Swiss financial
supervisory authority FINMA. UBS will comply with the regulatory changes
within the given time frame."

-------------------------------------------------------------------------------------
---------------------------------

http://www.businessspectator.com.au/bs.nsf/Article/Basel-III-Banks-must-
triple-basic-capital-buffers-98PCV?opendocument&src=rss

Basel III agreement announced

Published 6:16 AM, 13 Sep 2010 Last update 9:29 AM, 13 Sep 2010

BASEL - Global regulators, aiming to prevent any repeat of the international

credit crisis, have agreed to force banks to more than triple the amount of
top-quality capital they must hold in reserve.

The biggest change to global banking regulation in decades, known as "Basel

III", will require banks to hold top-quality capital totalling seven per cent of
their risk-bearing assets, up from just two per cent under current rules.

The rules may oblige banks to raise hundreds of billions of dollars of fresh
capital over the next decade.

Germany's banking association, for example, has estimated its 10 biggest

banks may need €105 billion ($A143.5 billion) of additional capital.

But to ease the burden on banks and financial markets, regulators gave the
banks transition periods to comply with the rules.

These periods, extending in some cases to January 2019 or later, are longer
than many bankers originally expected.

"The agreements reached today are a fundamental strengthening of global

capital standards," European Central Bank President Jean-Claude Trichet
said.
3
"Their contribution to long-term financial stability and growth will be
substantial."

Regulators hope the changes will push banks towards less risky business
strategies and ensure they have enough reserves to withstand financial
shocks without needing taxpayer bailouts.

But banks say the new requirements could reduce the amount of money
they have available to lend out to companies, slowing economic growth in
Europe and the United States as those regions recover from the credit crisis.

Capital standards

Under Basel III, banks will to hold top-quality capital -- known as "core Tier
1" capital, and consisting of equity or retained earnings -- worth at least 4.5
per cent of assets.

They will also have to build a new, separate "capital conservation buffer" of
common equity; this will be 2.5 per cent of assets, bringing the total top-
quality capital requirement to seven per cent.

If they draw down the buffer, they will face curbs on the bonuses and
dividends which they can pay out.

Another provision of Basel III, sharply criticised by some banks, will require
them to build a separate "countercyclical buffer" of between zero and 2.5 per
cent when the credit markets are booming.

National regulators will decide when economies have entered such periods of
"excess aggregate credit growth".

They hope the buffer will slow lending when credit markets threaten to
overheat, preventing dangerous bubbles from forming.

Although banks did not get their way on countercyclical buffers, they did
appear to succeed in convincing regulators to provide generous transition
periods.

The Tier 1 capital rule will take full effect from January 2015, with the capital
conservation buffer phased in between January 2016 and January 2019.

Some analysts said this showed regulators were caving in to the banks.

"The phasing-in period for the new capital requirements is surprisingly long,
which will add to the scepticism about the robustness of the bank capital
enhancement efforts," co-chief investment officer of bond investment giant
PIMCO Mohamed El-Erian told Reuters.
4
G20 endorsement

The Basel III agreement was reached in Switzerland by central bank

governors and top supervisors from 27 countries, after a year of horse-
trading and lobbying that involved banks and governments seeking to
protect their national interests.

Along with the capital standards, Basel III includes a range of reforms
agreed earlier this year to reduce risk-taking by banks, including rules on
how liquid banks' assets must be and how banks must treat tax assets on
their books. Some changes were watered down in July after strenuous
lobbying by banks.

After refusing in July to endorse draft Basel III rules, Germany won a key
concession on Sunday, receiving a 10-year grace period from 2013 to phase
out certain types of bank capital such as "silent participations", which are
widely used by its state-backed banking sector but little used elsewhere.

Leaders of the Group of 20 leading countries, blaming the global credit crisis
partly on risky trading by banks, called on regulators in 2009 to work on
tougher bank capital rules.

The G20 leaders are set to endorse Sunday's deal when they meet in Seoul
in November.

Most of the world's top banks have to a large degree repaired their balance
sheets since the crisis, so they are not expected to need to rush to raise
funds in response to Basel III.

But Deutsche Bank, Germany's flagship lender, announced at the weekend

that it planned to raise at least €9.8 billion to buy the rest of Deutsche
Postbank.

The fund-raising is seen partly as an effort to tap markets before any Basel-
induced cash calls by other banks.

US welcomes agreement

US bank regulators welcomed the global bank safety accord, saying it would
protect against future financial crises like the one that rocked global markets
from 2007 to 2009.

"The agreement represents a significant step forward in reducing the

incidence and severity of future financial crises," the Federal Reserve, the
Office of the Comptroller of the Currency and the Federal Deposit Insurance
Corp said in a statement.

5
US Treasury Secretary Timothy Geithner also welcomed the agreement,
saying he looked forward reviewing the details of the proposed reforms.

"We remain committed to reaching agreement by the time of the G20

meeting in Seoul on a strong set of reforms that will reduce the costs of
future financial crises, provide certainty to the markets and secure a level
playing field for US financial institutions," he said.

Meanwhile, British Bankers Association director Simon Hills said the terms of
the agreement were broadly in line with expectations.

"It looks like a good step towards increasing resilience of the banking
system," he said.

"What is important is that the Basel Committee starts work now to make
sure there are globally accepted policies and procedures in place to make
sure these rules are implemented in a harmonised way."

The banking sector could live with the deal, with the capital conservation
buffer a bit lower than banks had feared, Mr Hills added.

"There has been a tremendous focus on getting this done quickly and it has
been done to the G20 timeframe which is why we need this ongoing
monitoring and ability for mid-course corrections."

More can be done

Swiss National Bank governing board chairman Philipp Hildebrand said the
agreement will improve resilience in the sector, but does not adequately
address the concerns raised during the global financial crisis.

"While the reform package is far-reaching, it does not yet comprehensively

address the TBTF ("too big to fail") problem. Further efforts will be required
in that area at the international and at the national level," Mr Hildebrand
said.

"For Switzerland, the Basel III reform package provides a solid foundation
on which to build a comprehensive national regulatory response to the TBTF
problem."

But the reform package will ensure that, going forward, banks will hold
much larger buffers of higher quality capital and liquidity, he added.

"This will make the global financial system more resilient to future shocks.
Gradual implementation of the new standards will support the economic
recovery."

6
--------------------------------------------------------------------------

Reactions to Basel III

September 13, 2010

Banks will have to more than triple to 7 per cent the amount of top quality
capital they hold to withstand future shocks, global regulators and central
bankers agreed overnight.

The agreement, known as "Basel III", will force banks to set aside far more
capital to withstand market shocks in future in a bid to lessen the need for
bailouts by governments seen during the financial crisis.

Following are some reactions and official statements issued after the
agreement:

TIM RYAN, CEO THE SECURITIES INDUSTRY AND FINANCIAL MARKETS

ASSOCIAITON

"The Committee's proposals appear to move in the same direction as the

requirements enacted into law by the Dodd-Frank Act, while providing a
reasonable time frame for implementation.

Yet we believe a number of issues must be resolved if these proposals are to

support stability without constraining the supply of capital which is essential
to support economic growth and job creation.

These new rules will have a large economic impact when fully implemented.
So, it is critical that they be implemented with consideration to providing
stability and confidence to financial system without limiting long term
economic growth."

ROB MCIVOR, DIRECTOR OF COMMUNICATIONS, ASSOCIATION OF

FINANCIAL MARKETS IN EUROPE

"It appears that the Committee has recognised the importance of ensuring
that, in the transition to the new regime, recapitalisation timing does not
undermine the banks' ability to meet their customers' credit requirements.

"However, even now, there remain significant concerns, particularly the

proposal to designate some firms as systemically important and therefore
burdened with additional requirements.

"We believe this would be fraught with difficulty -- as, in other contexts, the
Basel Committee has recognised -- and unnecessary.

7
"Banks will need to do a great deal of work over the next few weeks to
assess fully what the impact of the Basel proposals will be. Disproportionate
requirements would be damaging for both the financial sector and the wider
economy. Continuing uncertainty over what is required could have a
negative impact on the banks' ability to plan ahead, which in turn will act as
a brake on recovery in European economies."

RICHARD BARFIELD, DIRECTOR, PRICEWATERHOUSECOOPERS

"One of the features of the phasing in they are proposing is that in the later
stages you will get an accelerated effect with the deductions and increase in
ratios.

"I expect that what will happen is that the larger banks will move towards
these figures ahead of the timetable.

"Apart from a consistent worldwide application, it's important that capital is

just part of the process of improving financial stability, and the other key
factors are improved supervision, improved risk management, and making
those things happen as well is the difficult challenge.

"There is also a risk in the approaches. In terms of the countercyclical

buffer, you have a bald number to protect against excess credit, but bubbles
tend to affect individual asset classes at different points in time so it's a
blunt instrument. To manage risk you have to be more targeted.

"The Basel Committee has achieved a lot in a short time in the world of
banking regulations."

U.S. TREASURY SECRETARY TIMOTHY GEITHNER

"We welcome this next step on the way to strong global financial reforms
and look forward to reviewing the details of these proposed reforms to global
capital requirements.

"We remain committed to reaching agreement by the time of the G20

meeting in Seoul on a strong set of reforms that will reduce the costs of
future financial crises, provide certainty to the markets and secure a level
playing field for U.S. financial institutions."

ROBBERT VAN BATENBURG, HEAD OF EQUITY RESEARCH, LOUIS CAPITAL

MARKETS, NEW YORK

"It's a mixed blessing for the banks but I'm sure investors will be happy to
get some clarity and allow the market to move on.

8
"I don't think there are any nasty surprises and there's a time frame to allow
for plenty of time to raise capital if needed. The best thing is it removes the
uncertainty that was hanging over the market... The markets should take
this favourably."

MOHAMED EL-ERIAN, CO-CHIEF INVESTMENT OFFICER, PIMCO

"The phasing-in period for the new capital requirements is surprisingly long,
which will add to the scepticism about the robustness of the bank capital
enhancement efforts."

SIMON HILLS, DIRECTOR, BRITISH BANKERS ASSOCIATION

"I think it's broadly in line with what we expected.

"The question is how much monitoring there will be while the changes are
being introduced. It's important there is ongoing monitoring and
reassessment to make sure it's doing what we expect it to do and not have
any unintended consequences we are nervous about.

"It looks like a good step towards increasing resilience of the banking
system.

"What is important is that the Basel Committee starts work now to make
sure there are globally accepted policies and procedures in place to make
sure these rules are implemented in a harmonised way.

"I think the banking sector can live with this deal. The capital conservation
buffer is a bit lower than we had feared.

"There has been a tremendous focus on getting this done quickly and it has
been done to the G20 timeframe which is why we need this ongoing
monitoring and ability for mid-course corrections."

CHRIS WHEELER, ANALYST, MEDIOBANCA, LONDON

"It is clear that as a result of concerns about the anaemic economic

environment, Basel is trying to balance the need for tougher regulation with
supporting the banks' inevitable role in the recovery. Hence the long
implementation time frame."

BOARD OF GOVERNORS, U.S. FEDERAL RESERVE SYSTEM

"The agreement represents a significant step forward in reducing the

incidence and severity of future financial crises, providing for a more stable

9
banking system that is less prone to excessive risk-taking, and better able to
absorb losses while continuing to perform its essential function of providing
credit to creditworthy households and businesses."

DANIEL ZUBERBUEHLER, VICE CHAIRMAN, BOARD OF DIRECTORS, SWISS

REGULATOR FINMA, ALSO A MEMBER OF BASEL COMMITTEE

"This will enable them (banks) to withstand larger shocks without relying on
government support. As a result, the global financial system will be more
resilient to shocks.

"In light of the current crisis that highlighted the fragility of the banking
sector such a reform was indispensable. To make sure that their
implementation supports economic recovery, capital and liquidity
requirements will be introduced gradually over the next decade.

"The FINMA and SNB strongly support these efforts.

"At the domestic level, we remain confident that the commission of experts
can build on today's agreement and submit a set of proposals to the
government. It is our responsibility to do all we can to ensure that in the
future:

* systemic banks will be significantly more resilient than the other banks

* they have incentives to reduce their systemic importance

* the resolvability of large banks with cross-border activities is facilitated"

PHILIPP HILDEBRAND, CHAIRMAN OF THE GOVERNING BOARD OF THE

SWISS NATIONAL BANK (SNB)

"The reform package will ensure that, going forward, banks will hold much
larger buffers of higher quality capital and liquidity. This will make the global
financial system more resilient to future shocks. Gradual implementation of
the new standards will support the economic recovery.

"While the reform package is far-reaching, it does not yet comprehensively

address the TBTF ("too big to fail") problem. Further efforts will be required
in that area at the international and at the national level.

"For Switzerland, the Basel III reform package provides a solid foundation
on which to build a comprehensive national regulatory response to the TBTF
problem."

UBS

10
"UBS took note of the recommendations issued by the Basel Committee
today. The Basel Committee set the international minimum standards, which
have to be implemented by national regulatory authorities.

"For UBS the relevant standards are mainly set by the Swiss financial
supervisory authority FINMA. UBS will comply with the regulatory changes
within the given time frame."

AGUSTIN CARSTENS, MEXICO CENTRAL BANK CHIEF, AND GUILLERMO

BABATZ, HEAD OF MEXICO'S NATIONAL BANK COMMISSION

"For Mexico, the modifications will not be very profound since we already
have very tight regulations on bank capital"

-------------------------------------------------------------------------------------
-----

Basel III - no big bang for banks

September 13, 2010

New bank capital requirements agreed by global regulators have brought

relief to Asia's financial sector as fears that lenders might be forced into
fresh capital raising are put to rest.

The new rules, known as Basel III, will require banks to hold top-quality
capital totalling 7 per cent of their risk-bearing assets.

This is a substantial increase from the current requirement of 2 per cent, but
is significantly lower than what banks had feared earlier this year and comes
with a phase-in period extending in some cases to January 2019 or later.

"It's no big bang for banks, not with a phase-in arrangement of five years,"
said Commonwealth Securities analyst Craig James.

Japan's largest banks, which have some of the lowest levels of capital in
Asia, rallied on the news. Mizuho Financial Group rose as much as 2 per cent
and Mitsubishi UFJ Financial Group increased as much as 3.0 per cent.

Analysts at Macquarie estimate that Japanese banks have on average a

common equity ratio of 6.3 per cent, just shy of the 7 per cent requirement.

However, banks will not be required to meet the minimum core tier 1 capital
requirement, which consists of shares and retained earnings worth at least
4.5 per cent of assets, until 2015. An additional 2.5 per cent "capital

11
conservation buffer" will not need to be in place until 2019.

"I don't think any Japanese banks now have to raise capital on the back of
this, barring any sizeable acquisitions," said Ismael Pili, Macquarie's head of
Asian financials research.

An official from Japan's regulator, the Financial Services Agency (FSA), said
Japan's top banks can meet the new capital requirements "within their usual
business efforts," adding he did not think the banks would be forced to raise
fresh capital or drastically reduce their assets.

For China, it may take some time before the new measures hit the rule
books, one of the country's top bankers said.

"It will take a long time to implement Basel III rules," Bank of China
Chairman Xiao Gang told Reuters on the sidelines of the World Economic
Forum's summer meeting in Tianjin, China.

"It's also difficult to say when China will implement this rule because we
haven't exercised Basel II yet," he said.

However, Zhu Min, deputy governor of the country's central bank, signalled
he is keen for the rules to be adopted in a co-ordinated manner.

"The concern is that if everybody in the world applies different levels at the
same time, it may cause international arbitrage in the regulatory
framework," he told reporters in Tianjin.

Most banks in the rest of Asia have capital levels well above the minimum
levels under Basel III. That presents some banks with an opportunity for
further growth by releasing some of their surplus capital, some analysts
said.

"From here in Asia, the trick is to find the well-capitalised banks and match
them with markets ripe for a further expansion in lending," said Macquarie's
Pili, adding Indonesian banks have the most to benefit from the new
requirements.

But with Asia leading the global economic recovery, the region's banks are
likely to be the first in the world to have to meet the additional counter-
cyclical capital buffer of 0 to 2.5 per cent, which national regulators will
apply during periods of excess credit growth.

"My take for non-Japan Asia, you are still looking over the course of the next
10 years at significantly more capital in the system," said Bill Stacey, head
of equities at Keefe, Bruyette & Woods Asia in Hong Kong.

12
He added that if regulators in Asia make full use of the counter-cyclical
buffer, some banks may face a total capital requirement of 13 per cent - the
10.5 per cent tier 1 and tier 2 requirement plus the buffer on top.

For Europe, the pain is likely to be more immediate. Top German lender
Deutsche Bank is seeking a headstart on its rivals by announcing plans to
raise almost 10 billion euros to bolster its capital.

Other banks in Germany, Spain, France, and elsewhere are likely to follow
suit to meet the new standards.

But the long run-up period that banks have to meet the requirements is
likely to make the process easier for Europe's financial sector. The euro
rallied almost 1.0 per cent against the US dollar in Asian trade to hit
$US1.2808.

This implementation period raised questions, though, about whether heavy

lobbying and the global economic recovery reduced regulators' resolve for
harsher measures following the deepest financial crisis in decades.

"The phasing-in period for the new capital requirements is surprisingly long,
which will add to the scepticism about the robustness of the bank capital
enhancement efforts," said Mohamed El-Erian, co-chief investment officer at
Pimco, the world's biggest bond management company.

The Basel III agreement was reached in Switzerland by central bank

governors and top supervisors from 27 countries, after a year of horse-
trading and lobbying that involved banks and governments seeking to
protect their national interests.

Along with the capital standards, Basel III includes a range of reforms
agreed earlier this year to reduce risk-taking by banks, including rules on
how liquid banks' assets must be and how banks must treat tax assets on
their books. Some changes were watered down in July after strenuous
lobbying by banks.

Leaders of the Group of 20 rich countries and big emerging economies,

blaming the global credit crisis partly on risky trading by banks, called on
regulators in 2009 to work on tougher bank capital rules.

The G20 leaders are set to endorse Sunday's deal when they meet in Seoul
in November.

13
Basel II and the Crisis - 15 Recommendations to the Banks That
(Sort Of) Use Stress Testing

Recommendations to banks

1. Stress testing should form an integral part of the overall governance and
risk management culture of the bank. It should be actionable, with the
results from analyses impacting decision making at the appropriate
management level, including strategic business decisions of the board and
senior management.

Board and senior management involvement is essential for its effective

operation.

2. A bank should operate a stress testing programme that: promotes risk

identification and control; provides a complementary risk perspective to
other risk management tools; improves capital and liquidity management;
and enhances internal and external communication.

3. Stress testing programmes should take account of views from across the
organisation and should cover a range of perspectives and techniques

4. A bank should have written policies and procedures governing the

programme. The operation of the programme should be appropriately
documented.

5. A bank should have a suitably robust infrastructure in place, which

issufficiently flexible to accommodate different and possibly changing tests
at an appropriate level of granularity.

6. A bank should regularly maintain and update its framework.

The effectiveness of the programme, as well as the robustness of major

individual components, should be assessed regularly and independently.

7. Stress tests should cover a range of risks and business areas, including at
the firm-wide level. A bank should be able to integrate effectively across the
range of its testing activities to deliver a complete picture of firm-wide risk.

8. Programmes should cover a range of scenarios, including forward-looking

scenarios, and aim to take into account system-wide interactions and
feedback effects.

9. Tests should be geared towards the events capable of generating most

damage whether through size of loss or through loss of reputation.

14
A programme should also determine what scenarios could challenge the
viability of the bank (reverse stress tests) and thereby uncover hidden risks
and interactions among risks.

10. As part of an overall programme, a bank should aim to take account of

simultaneous pressures in funding and asset markets, and the impact of a
reduction in market liquidity on exposure valuation.

11. The effectiveness of risk mitigation techniques should be systematically

challenged.

12. The programme should explicitly cover complex and bespoke products
such as securitised exposures.

Tests for securitised assets should consider the underlying assets, their
exposure to systematic market factors, relevant contractual arrangements
and embedded triggers, and the impact of leverage, particularly as it relates
to the subordination level in the issue structure.

13. The programme should cover pipeline and warehousing risks.

A bank should include such exposures in its tests regardless of their

probability of being securitised.

14. A bank should enhance its testing methodologies to capture the effect of
reputational risk.

The bank should integrate risks arising from off-balance sheet vehicles and
other related entities in its programme.

15. A bank should enhance its testing approaches for highly leveraged
counterparties in considering its vulnerability to specific asset categories or
market movements and in assessing potential wrong-way risk related to risk
mitigating techniques.

* 1. Become member of the Basel ii Compliance Professionals Association

(BCPA), the largest association of Basel ii Professionals in the world. At
every stage of your education, training, and career, our association provides
information and services you can use.

15+ of the best headhunters of the world are members of the association, so
you may have new opportunities.

15
the Basel II Accord -- How it may benefit banks that comply

The Basel II Accord, which is anticipated to be finalized by the fourth

quarter of this year, with implementation to take effect in member
countries by year-end 2006, imposes new regulatory methods of
calculating capital that apply to both banking and non-banking
subsidiaries of bank holding companies.

Compliance with Basel II will require increased capital commitments from all
banks, as well as increased transparency and reporting to both regulators
and the marketplace. To conform to these regulations, financial services
firms are expected to rely heavily on new technology infrastructures.

The more successful banks are likely to secure considerable competitive

advantage by reducing their regulatory capital requirements, thus increasing
their capital. By the same token, financial services providers that fail to
create the necessary IT environments will operate at a significant
competitive disadvantage.

A survey recently commissioned by Oracle into European banks' readiness to

comply with the Basel II accord has revealed some interesting trends.
According to the survey, many factors beyond compliance with the Basel II
Accord are driving the initiatives banks are pursuing for better risk and
capital management along the regulatory requirement timeline. The survey
results indicate that Basel II may herald a fundamental change in the way
banking organizations view their data management needs and future
investments in IT.

One finding of the recent Oracle survey is that banks are implementing
software not only to meet the regulatory requirements of Basel II, but also
to drive greater business intelligence and develop competitive advantage. Up
to 89 percent of banks surveyed are planning to use the data for other
business purposes, while 82 percent see their investment in software to
support Basel II compliance as an opportunity to create strategic
differentiators for their businesses.

Banks participating in the survey also revealed that Basel II is providing an

opportunity to fundamentally overhaul their business processes. Fifty-five
percent of banks interviewed for the Oracle study say that through their
efforts to get ready for Basel II they expect to be able to merge their risk
management and finance functions. Basel II compliance is clearly stimulating

16
banks to think about how they could run their businesses more efficiently.

Oracle's market analysis indicated that preparations for the Basel II accord
are well underway for many banks, with 79 percent opining that they will
have implemented their Basel II programme at least one year in advance of
the deadline, with 49 percent indicating that they will have finished their
implementations two years in advance. Many banks see the advantages of
the opportunities prompted by Basel II as too attractive to wait for the
commencement of the accord.

Rather than viewing Basel II as just expensive operational programme, 92

percent, an overwhelming majority of the respondents to the survey, said
that achieving return on investment (ROI) from any technology initiative to
ensure compliance is important to them. This finding represents a change in
the way banks view their expenditure on operational IT infrastructure, and a
recognition by the banking community that the impact of Basel II extends
far beyond compliance with a new set of industry regulations.

When considering both a technology vendor with which to partner and

software solutions to implement around Basel II compliance, the factors
which participating banks ranked most highly were reliability, customer
focus, ease of integration, and flexibility.

Results indicate that the banks participating in the Oracle survey presented a
positive perspective on the coming of Basel II, with most respondents
commenting that the accord is likely to result in both better business
decisions from more advanced information management and more efficient
and effective allocation of capital.

Overall, the Oracle survey revealed that Basel II represents a massive

opportunity for banking communities right across the globe.

Results indicate that the pressure on banks to centralize on one standard set
of data as a consequence of Basel II opens up a wealth of additional
possibilities, both for streamlining business processes and creating
innovative new products.

In addition, banking operations that will run on a single instance of data as a

result of Basel II compliance initiatives are able to interact with their
customers at a much more intelligent and innovative level.

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It appears likely that banks will not only adopt more sophisticated measures
for managing credit risk, leading to more efficiency and stability in the
market, but will use the opportunity provided by Basel II compliance
measures to think about how they can build on their existing operations
through the use of strategic differentiators.

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