Basel II: The business
impact starts to sink in
London – Financial service institutions worldwide
are recognizing and embracing a new era of banking, instigated by
Basel II, according to a new survey published by leading professional
services provider Ernst & Young.
Processes and systems will significantly change,
along with the way risks are managed, signifying a new era and fresh
dynamic in the global financial services market place, according
to the results of the poll of over 300 banks.
“Basel II is recognized as more than a regulatory
requirement. Our survey indicates that senior banking executives
are beginning to appreciate the long-term impact of Basel II on
their own organizations and banking as a whole,” Patricia
Jackson, Partner at Ernst & Young UK and former member of the
Basel Committee, said.
Over three-quarters of banks surveyed for Basel
II: The Business Impact believe these regulations will change the
competitive landscape for banking. Those organizations with better
risk systems will benefit at the expense of those who have been
slower to absorb change. 85% of respondents believe that economic
capital would guide some, if not all pricing. Greater specialization
is also predicted, due to an increased use of risk transfer instruments.
“The expectation is that the new risk information
required by Basel II will change product pricing and portfolio management—with
more loan trading and greater use of derivatives. The more sophisticated,
larger banks, that have the ability to leverage the new risk data,
will gain a significant advantage.
There will be winners and losers,” Jackson
explained. The majority of respondents (over 70%) believe that portfolio
risk management will become more active, driven by the availability
of better and more timely risk information as well as the differential
capital requirements resulting from Basel II. “This could
improve the profitability of some banks relative to others, and
encourage the trend towards consolidation in the sector,”
Jackson commented.
|