Media release, requirements and forms relating to the Basel II reporting requirements were today released by APRA – only half way through the period for which the reporting will be needed. Good timing. Maybe the next changes will be released before we have to comply with them. I don’t ask for much.

By the way, there is a slightly misleading title to this piece, as the standards released today are plainly not final. In the response to submissions paper APRA moot two further changes, both to undo changes that have been made to this version. These are covered below.

One other little gripe – I had some trouble finding the response to submissions paper on the Basel II home page at APRA, as, silly me, I was looking for a paper released in 2008. Perhaps in a cunning plan to make it look like they were early, the release date on the page is 6 February 2007, not 2008. I trust this will be fixed shortly. If you are with APRA, you may want to talk to your web people and get his fixed, pronto. On the other hand, maybe not.

OK, onto the actual content. I will use the APRA paragraph numbers from the response paper to talk through them. If you are really interested, print the thing out. Double sided, it is only 7 pieces of paper. Don’t ever print all the requirements.

Advanced ADIs

2.1 – Credit margin data

This was always really just an attempt at further statistics data by APRA, so it is no surprise it got adverse comment and therefore has been deleted. I think the discussion about “gaining a better understanding” and “implementing reporting” over the next 12 months is butt-covering. They may try to bring this in, but I think that there will need to be a bit of systems development before they can do so.

2.2 – Submission timeframes

this wa the big change – APRA essentially got told “no way, José” on the 20 day (4 week) limit for reporting. The extension out to 6 weeks is a good move, particularly early on while these things are bedding down. One of the two reversions mentioned above is that they are talking about moving back to 20 days eventually – with 2009 being mentioned as a possible target. This would mean that there would only be between 4 and 7 quarterly reports done before it moves to 30 days. I am not sure this is enough reports to get the timings down by a third, so I think this will probably be pushed out further. Look to this in 2010-2011.

2.3 – Scaling factor

This was essentially the correction of an error by APRA in application of the scaling factor, so I will leave it there.

2.4 – Repricing analysis

Big raised digit here from APRA to the banks who asked about this one – no change on this front. Although IRRBB will not be a factor until mid-2008, reporting on it starts now.

Win three, lose one – not a bad result.

All ADIs

3.1 – Securitisation

This is an interesting one – some banks’ systems do not allow them to split out all the data required for the securitisation reporting and so they said they cannot do it. It was also a bit of an information grab by APRA. They have therefore just given a bit more time as they believe all ADIs should be able to identify this – one quarter. I think there will be a few large spreadsheets as an emergency measure to calculate this one at some ADIs.

3.2 – Derivative and liquidity

Unusual result this – the ADIs actually asked to have some reporting put back in. None of the banks I know asked for this back in, so I guess it was a few of the smaller ones who need to report this to other banks and want the cover of an APRA report to do it. Odd. If anyone knows more, feel free to comment.

3.3 – Operational Risk

This was just a sensible change, where APRA had originally tried to write an exhaustive list of “other businesses” to be excluded from the ops risk capital calculation. The ADIs pointed out many things that were similar to the exclusions noted and were not excluded, so APRA have reverted to a principles based-approach. Much better.

Basel I Continuing Reporting

The other thing – a bit under the radar and not in the response to submissions – is that all Advanced institutions must continue to report under Basel I as well – per ARS 150. This is so that the minimum capital does not fall under the Basel I standards for a while, at least until APRA is comfortable. Though annoying, from APRA’s point of view this had to be done as they have said that this will not be allowed. All Advanced banks will therefore have to report under two standards and their minimum capital will be the greater of the two. Well, OK – 90% of Basel I, but you get the idea. I somehow doubt that APRA will actually expect this floor to be hit any time soon.
Remind me, what was the idea of Basel II again? Oh, that’s right, lower capital in reward for better risk management.
Those that are continuing to apply Basel I as they are nearly Basel II advanced, but are not there yet (NAB and BankWest) are also c

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