A newsletter out from the Basel Committee gives some information on the progress towards implementation globally, but, to be honest, it pulls all its punches. It just gives broad information on where most of the countries implementing the Accord are – and does not give any specific information on those that are failing or even giving any concern. On the progress front it is a bit of wasted space.
The interest is in the bits on the new workstreams.
The liquidity management piece will be interesting as this still represents the area of most concern to banks that is (mostly) outside the scope of either of the Accords. Some guidance in liquidity management would be good – and some concrete proposals better. Poor liquidity management is often where a bank’s problems will first become manifest and is often the prime cause of a collapse.
The capital definition in the new Accord was just a rehash of the old, leaving most national regulatory definitions still in place. There has been significant innovation in this area over the last 20 or so years since the original definition came out, meaning that there is now significant variation in practice by country. Some work to standardise practices would be very useful.
It is the economic capital working party, though, that will be having the real fun. This will be the group that is doing the work on Basel III – the next Accord (sounds like one of those never-ending movie series, doesn’t it). Their remit will be:
- new measurement approaches for credit risk,
- the treatment of diversification effects,
- the assessment of complex counterparty credit risks,
- the treatment of interest rate risk, and
- firms’ approaches to validation of internal capital assessments.
These are the foundation of the next one, guys – just what we were looking for.