Basel II: From Idle Talk to De Facto Standard in Global Financial Services

TowerGroup Take-Aways

• TowerGroup believes Basel II will evolve to a de facto framework for determining capital adequacy by 2012.
• The elements of risk measurement and capital allocation contained in Basel II should be considered as a best practice for small banks as well as nonbank financial services institutions (FSIs).
• Although the credit crisis has many FSI executives believing Basel II has failed, such judgment is premature as global regulators are redefining, and toughening, standards.
• The disciplines fostered by Basel II may well serve to divert the industry from future credit crises.
• The potential downside to Basel II is that FSIs might focus on form rather than substance in implementation, thus wasting time and money and failing to achieve any real benefits of risk management.

Report Coverage

Although viewed as complex and costly by some financial services institutions (FSIs), Basel II offers a robust framework for risk management that can benefit the institutions, their customers, and stockholders. Globalization of the financial services industry is a fact, and Basel II may well become a de facto standard in providing the stakeholders in any FSI assurance that their institution is sound. This TowerGroup ViewPoint discusses the positive role Basel II can play throughout the industry, given its globalization and the continuing credit crisis.

Report Coverage

Background

Basel II Standards: Changing and Converging

In the Absence of a Silver Bullet, Lead Will Do

Summary