US agencies issue QIS4 and LDCE survey materials

US financial regulators have issued survey materials for the fourth Quantitative Impact Study (QIS4) and the Loss Data Collection Exercise (LDCE) in preparation for the implementation of the Basel II capital framework in the US.

The country's Federal Financial Institutions Examination Council has posted the materials for the survey on its website at www.ffiec.org.

The agencies are requesting responses for the LDCE by late November 2004 and for the QIS4 by late January 2005. The information received should help them to, by mid-year 2005, prepare a joint Notice of Proposed Rulemaking for implementing Basel II in the US.

Office for the Comptroller of the Currency (OCC) deputy controller for capital and regulatory policy Kevin Bailey said he expects the number of participants in the LDCE to be fewer than those participating in the QIS4. About 30 US banking organisations are interested in participating in the US version of the QIS4, while the LDCE respondents may well be fewer than 10. The OCC regulates domestic deposit taking institutions.

“The format for the LDCE is quite similar to the one conducted in 2002. We have been in touch with QIS4 participants, and we think they have enough time to respond by the end of January 2005,” Bailey said. The 2004 Operational Risk LDCE is a voluntary survey that asks banking organisations to report the amount of individual operational losses as well as certain descriptive information regarding each loss - for example, date, business line and loss type. The survey asks banks to report all losses that occurred on or before June 30, 2004 or September 30, 2004 – consistent with the data used for the capital amounts that a bank reports for operational risk in QIS4.

The LDCE should provide supervisors with the ability to assess the extent to which the QIS4 results are driven by internal loss data and the factors that an institution considers in its modelling approaches and qualitative risk assessments.

The Basel Committee on Banking Supervision proposed new international capital standards for banking organisations in June 2004, and the proposal is currently being evaluated by bank supervisory authorities worldwide.

QIS4 is intended to provide the agencies with a better understanding of how the implementation of a more risk-sensitive approach for regulatory capital standards might affect minimum required capital at the industry, institution and portfolio level.

The LDCE is intended to provide insight, based on detailed loss event data, into the implications of the proposed Basel II standards regarding the advanced measurement approaches for evaluating operational risk.

Bailey also said the operational risk benchmarking exercise in all the Basel II mandatory banks was nearing completion. “We are about done with the benchmarking exercise. We will be finished in November or early December,” he said.