Bankers balk at Basel II
The latest round of bank capital proposals from the Basel Committee offers few incentives to banks to introduce more sophisticated risk rating methods while rasing concerns over increases in regulatory capital.
The consultative paper for the second Basel Capital Accord could not have been less popular with banks. After the Basel Committee on Banking Supervision issued its proposals this January, banks figured out that their regulatory capital, the most expensive capital of all, would increase substantially.
Consultancy PricewaterhouseCoopers estimated that the proposal, if carried forward unchanged, would increase regulatory capital for the banking industry by about 30% to 40% in aggregate.
A large part of this increase results from a charge of up to 30% of a bank's gross income to account for operational risk. Following a huge outcry from the banking community, the Basel Committee has already committed itself to reducing this figure.
But bankers still don't sleep well over the new Basel Accord. The problem is not only that the proposals on operational risk and other areas could damage banks' business, or that there is so much work left to be done that the timetable for implementing the accord had to be delayed in June for one year.