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Banks still puzzled by Basle II

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The new Basle II capital adequacy rules have been approved by central bankers and regulators of the G10 group of nations but banks remain confused about how to implement the credit monitoring requirements.

The regulations, which still require approval from political bodies, have won endorsement from the G10 after nearly six years of negotiations. They were immediately welcomed by the Washington-based Institute for International Finance.

But the IIF also repeated its concerns about how the rules will be enforced and their likely impact on banks.

?Much remains to be done for Basle II to deliver the full benefits of a level playing field and risk-sensitive capital adequacy regulation,? said the IIF. ?Operation under the accord can become costly and perhaps difficult to manage if banks are subjected, for example, to inconsistent interpretations, duplicative requirements for information, or repeated validation exercises by regulators.?

A separate report, based on a survey of banks, echoed this uncertainty about how to implement. It found concerns about budgets, lack of confidence in risk management frameworks and slow progress in implementing credit-risk monitoring tools.

Most survey respondents said they expected Basle II to bring them benefits in terms of better capital allocation and risk pricing but many also said they had a lot of work left to do to satisfy some key requirements.

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