Monitoring Compliance with the Basel II Accord Charles H. Le Grand

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Monitoring Compliance with the Basel II
AccordCharles H. Le Grand

• Reliability of Global Financial Infrastructures,
  Information, and Reporting
• Accountability
• Standards
• Measurement
• Analysis

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Basel II Accord

• International Convergence of Capital Measurement
  and Capital Standards A Revised Framework
• Basel Committee on Banking Supervision
• Bank for International Settlements, Basel,
  Switzerland. (www.bis.org)

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Basel II Accord Objectives

• International convergence on regulations
  governing capital adequacy of internationally
  active banks
• Framework for measuring capital adequacy to
  strengthen the soundness and stability of the
  international banking system
• Consistency so capital adequacy regulation will
  not cause competitive inequality among
  international banks
• Adopt strong industry risk management practices
• Minimum standard for national supervisory
  authorities
• Maintain the aggregate level of minimum capital
  requirements and provide incentives to adopt the
  advanced risk-sensitive approaches of the revised
  Framework

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Three Pillar Approach

• Minimum Capital Requirements
• Supervisory Review
• Market Discipline

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Pillar 1

• Calculation of Minimum Capital Requirements
  considering
• Credit Risk
• Operational Risk
• Market Risk

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Pillar 2 Supervisory Review of Capital Adequacy
Four Key Principles

1. Banks process for assessing their overall
   capital in relation to their risk profile,
   andStrategy for maintaining their capital levels

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Pillar 2 Supervisory Review of Capital Adequacy
Four Key Principles

• 2. Review evaluate banks internal capital
  adequacy assessments and strategies, as well as
  their ability to monitor and ensure compliance
  with regulatory capital ratios. Take
  appropriate supervisory action if not satisfied
  with the results of this process.

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Pillar 2 Supervisory Review of Capital Adequacy
Four Key Principles

• 3. Expect banks to operate above the minimum
  regulatory capital ratios, and Require banks to
  hold capital in excess of the minimum.

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Pillar 2 Supervisory Review of Capital Adequacy
Four Key Principles

• 4. Supervisor intervention at an early stage to
  keep capital at or above the minimum levels for
  the risk characteristics of a particular bank and
  Require a rapid remedy if capital is not
  maintained or restored

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Pillar 3 Market Discipline through Enhanced
Public Disclosure

• The disclosures provided under the third pillar
  of this Framework will be essential Ensuring
  market discipline is an effective complement to
  the other two pillars.

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Critical Infrastructure Protection (CIP)

• Financial Systems
• Energy
• Communications
• Transportation
• Technology
• Food and Water
• Waste Management
• Government
• Law Enforcement
• Peacekeeping
• Emergency Management and Response

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Compliance Cultures

• Compliance Administrative Overhead
• Cost / benefit of regulatory requirements (who?)
• Impacts on management time and opportunities
• Impacts on competition smaller banks
• Aversion to prescriptive regulations
• Role of politics in regulation and supervision
• Opportunity to base compliance on measures that
  are also relevant to management

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Operational and Other Risk

• System and communication failures
• Systemic risks (cascading across organizations)
• eFraud internal and external
• System integrations (as from mergers) and
  conversions and the roles of testing
• Targeted attacks on institutions and/or
  infrastructures
• Purchasing and providing services
• The role of innovation and new risk instruments

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Supervisor and Convergence Roles

• Learning from the current global financial
  situation
• Cultural change to position regulation and
  supervision as a benefit not a burden
• Reduce incentives to game the system
• Monitoring and analytics intelligent enough to
  spot dangerous schemes before they become the
  next catastrophe

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Contact

• Charles H. Le Grand, CHL Global Associates
• 206 Sweetwater Blvd So., Longwood, FL 32779
• 407-830-1040 office
• 407-830-1020 home
• 321-287-8020 mobile
• 407-413-9192 Skype clegrand1
• www.CHLGlobalAssociates.com
• clegrand_at_cfl.rr.com
• TechPar Group - www.techpargroup.com
• clegrand_at_techpargroup.com