Basel Accord finalisation delayed by six months

The Basel Committee on Banking Supervision announced today that the finalisation of Basel II will be postponed from year-end 2003 to mid-year 2004. Such a delay was widely anticipated in light of the tone and volume of comments that the committee received to its third consultative paper (CP3), published in April. The comments were posted on the Bank for International Settlements’ website in July.

The committee noted that it will take the various national legislative and regulatory rule-making processes into account when making any additional changes. In addition, the committee was vague about whether or not the six-month delay would affect the final deadline of January 1, 2007 for implementation, saying only that “the ongoing further discussions by the committee as outlined in this press release are not expected to alter the need for banks to continue improving databases and risk management systems in preparation for the new Accord”.

The principal areas that the committee will focus on, based on the CP3 comments, include:changing the overall treatment of expected versus unexpected credit losses;simplifying treatment of asset securitisation, including eliminating the ‘supervisory formula’ and replacing it by a less complex approach;revisiting the treatment of credit card commitments and related issues; andrevisiting the treatment of certain credit risk mitigation techniques.”

The first item on the list is the most significant, and was the subject of significant pressure from US banks. The committee issued, alongside its announcement, a paper that outlined the “broad direction of the approach that the committee has directed its working groups to develop further”. It invited comments before the meeting of the committee in January 2004.

The committee says that it will also conduct a “further review” of the calibration of Basel II, using national quantitative impact studies and banks’ own statistics. It will “propose additional adjustments to the calibration of the new Accord based on this review”.