The comment period on the last of the major Basel II implementation discussion papers has expired today. This means that the folk at APRA will now be busy on the last of the response papers and revisions to the draft prudential standards and draft prudential practice guides.
While not ideal, I think this process has gone reasonably smoothly. APRA have telegraphed their approach well ahead, consulted reasonably widely and made fairly sensible modifications to the Accord to suit Australian conditions. Although it has certainly had its moments, the banks and APRA have worked together as well as could reasonably be expected on this one.
The smaller institutions probably are not entirely happy, as, right from the start, APRA have made it abundently clear they were never going to achieve Advanced status, discouraging them from even trying. While sensible from a Basel II point of view – the smaller ones are unlikely to have anywhere near enough data, the reaction of the smaller ADIs, at least most of the ones I have seen, has been to put this on the back-burner and accept APRA’s verdict. This has been a bit of a pity, as better risk management, one of the aims of the Accord, then also gets pushed back.
Hopefully, items like good operational risk management will come to the fore as they work on their Standardised implementation processes. The realisation that credit risk calculation engines are not as expensive, or large, as they used to be should also drive things like pricing for risk, which I see as crucial to their long term survival and prosperity.
[UPDATE] I also like the symmetry that the Australian consultation process has largely finished just the the US sorts out what its process is going to be. Beating the US again – maybe we should persuade them to learn cricket.[/UPDATE]
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