THE BASLE II ACCORD is expected to be implemented in
2007 as the basis for global bank regulation, directly
affecting the capital required to support an estimated $50
trillion of global credit exposures. Like Basle I in 1988,
Basle II will have consequences for a wide range of banking
activities, and has already led to extensive political
lobbying and pre-emptive strategic positioning.
We estimate that banks will spend around $25 billion (five basis
points of assets) preparing for implementation, with the largest
banks typically investing $50 million to $200 million over five
years. Investments in credit risk measurement and management (which
have the strongest impact on risk-weighted assets - RWAs) and
supporting IT will be the most significant. Maximizing value from
these expenditures should be a key element in any bank's strategy,
and is increasingly being given priority at the highest levels in
leading banks.
The changes in capital requirements that...
