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Basel ii Accord
Sections 6 to
12 |
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6.
A significant innovation of the revised
Framework is the greater use of
assessments
of
risk provided by banks’ internal systems as inputs
to capital calculations.
In
taking this step, the Committee is also putting
forward a detailed set of minimum requirements
designed to ensure the integrity of these
internal risk assessments. It is not the
Committee’s intention to dictate the form or
operational detail of banks’ risk management
policies and practices.
Each supervisor will develop a set
of review procedures for ensuring that
banks’ systems and
controls
are adequate to serve as the basis for the
capital calculations. Supervisors will
need
to
exercise sound judgements when determining a
bank’s state of readiness,
particularly
during
the implementation process.
The
Committee expects national supervisors will
focus on compliance with the minimum
requirements as a means of ensuring the overall
integrity of a bank’s ability to provide
prudential inputs to the capital calculations
and not as an end in itself.
7.
The revised Framework provides a range of
options for determining the
capital
requirements
for credit risk and operational risk to allow
banks and supervisors to select
approaches
that are most appropriate for their operations
and their financial market
infrastructure.
In
addition, the Framework also
allows for a limited degree of national
discretion in the way in which each of
these options may be applied, to adapt the
standards to different conditions of national
markets. These features, however, will
necessitate substantial efforts by national
authorities to ensure sufficient consistency in
application.
The
Committee intends to monitor and review the
application of the Framework in the period ahead
with a view to achieving even greater
consistency. In particular,
its Accord
Implementation
Group (AIG) was established to promote
consistency in the
Framework’s
application by encouraging
supervisors to exchange information on
implementation
approaches.
8.
The Committee has also recognised that home
country supervisors have an
important
role in leading the enhanced cooperation between
home and host country
supervisors
that will be required for effective
implementation.
The
AIG is developing practical arrangements for
cooperation and coordination that reduce
implementation burden on banks and conserve
supervisory resources. Based on the work of the
AIG, and based on its interactions with
supervisors and the industry, the Committee has
issued general principles for the cross-border
implementation of the revised Framework and more
focused principles for the recognition of
operational risk capital charges under advanced
measurement approaches for home and host
supervisors.
9.
It should be stressed that the revised Framework is designed
to establish minimum
levels of capital for
internationally active banks. As under
the 1988 Accord, national
authorities
will be free to adopt arrangements that set
higher levels of minimum
capital.
Moreover,
they are free to put in place supplementary
measures of capital adequacy for
the
banking
organisations they charter.
National
authorities may use a supplementary capital
measure as a way to address, for example, the
potential uncertainties in the accuracy of the
measure of risk exposures inherent in any
capital rule or to constrain the extent to which
an organisation may fund itself with debt.
Where
a jurisdiction employs a supplementary capital
measure (such as a leverage ratio or a large
exposure limit) in conjunction with the measure
set forth in this Framework, in some instances
the capital required under the supplementary
measure may be more binding.
More
generally, under the second pillar, supervisors
should expect banks to operate above minimum
regulatory capital levels.
10.
The revised Framework is more risk sensitive than
the 1988 Accord, but countries
where
risks in the local banking market are relatively
high nonetheless need to consider
if
banks
should be required to hold additional capital
over and above the Basel minimum.
This
is particularly the case with the more broad
brush standardised approach, but, even in the
case of the internal ratings-based (IRB)
approach, the risk of major loss events may
be
higher
than allowed for in this
Framework.
11.
The Committee also wishes to highlight the need
for banks and supervisors to
give
appropriate
attention to the second (supervisory review) and
third (market discipline)
pillars
of
the revised Framework. It is critical that the
minimum capital requirements of the first pillar
be accompanied by a robust implementation of the
second, including efforts by banks to assess
their capital adequacy and by supervisors to
review such assessments.
In
addition, the disclosures provided under the
third pillar of this Framework will be essential
in ensuring that market discipline is an
effective complement to the other two
pillars.
12.
The Committee is aware that interactions between
regulatory and accounting
approaches
at both the national and international level can
have significant consequences
for
the comparability of the resulting measures of
capital adequacy and for the
costs
associated
with the implementation of these approaches.
The
Committee believes that its decisions with
respect to unexpected and expected losses
represent a major step forward in this regard.
The Committee and its members intend to continue
playing a pro-active role in the dialogue with
accounting authorities in an effort to reduce,
wherever possible, inappropriate disparities
between regulatory and accounting
standards.
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