UK watchdog will not pressure banks on advanced Basel II

The UK’s principal financial market watchdog will not pressure banks to adopt the advanced approaches to measuring risk capital under the Basel II banking Accord, UK Financial Services Authority (FSA) managing director Michael Foot said today.

“There will be no macho pressure from us as supervisor to persuade banks to attempt what they judge is not in their commercial interest,” he told a London conference on operational risk today.

Foot said the FSA had begun discussions with banking industry groups on the FSA’s plans to implement the standardised and advanced approaches to measuring operational risk, and on the internal ratings-based credit risk proposals of Basel II.

The complex and risk-based Basel II bank capital adequacy Accord proposes a range of simple to complex ways of measuring the risks faced by major banks to determine how much capital they should set aside to guard against risk.

Foot said the FSA would try to get the same message about not pressurising banks across to other national bank regulators.

He said the aim is easy enough to state – local flexibility for particular circumstances and broad consistency between countries on the main issues. “But no-one thinks the outcome will be easy to achieve,” he said.

Global banking regulators hope to introduce Basel II by the end of 2006. The European Commission wants to apply new capital adequacy rules closely modelled on Basel II to all banks and investment firms in the European Union, of which the UK is one of 15 member states.