BIS head defends complexity of Basel II

The most advanced approaches under the Basel II bank capital adequacy accord are likely to be complex if banks are to have the right incentives to measure and manage their risks, a senior international central banker said today.

To argue that simple solutions can be found for the supervision of a sophisticated, complex and innovative industry like banking would be naïve, Bank for International Settlements (BIS) general manager Andrew Crockett told the BIS annual meeting in Basel, Switzerland.

To succeed in its aims, the risk-based accord requires “a comprehensive multifaceted framework” resting on the three mutually reinforcing pillars of minimum capital requirements, supervisory oversight and market discipline, he said.

Moreover, said Crockett, banks in emerging markets won’t be forced to adopt more complex methodologies.

The Basel Committee on Banking Supervision, the architect of Basel II, is a committee of the BIS, the so-called central bankers’ central bank.

The Basel Committee itself is holding a quarterly meeting this week in Basel that is expected to end with an upbeat statement on progress with the controversial accord. The statement will follow several months of uncertainty during which some bankers questioned whether the accord would ever see the light of day.

Crockett said today that the Basel Committee has been careful to consult with a wide range of non-member countries and with the private sector.

Regulators hope Basel II will come into force for large international banks in late 2006.