Banking & Finance
This presentation is the property of its rightful owner.
Sponsored Links
1 / 17

Banking & Finance Technology Forum 2005 PowerPoint PPT Presentation


  • 74 Views
  • Uploaded on
  • Presentation posted in: General

Banking & Finance Technology Forum 2005. Basel II – The Implementation Phase Simon Topping Hong Kong Monetary Authority / City University of Hong Kong 9 March 2005. Basel II – The Implementation Phase. HKMA’s approach to implementation: Timing / available approaches

Download Presentation

Banking & Finance Technology Forum 2005

An Image/Link below is provided (as is) to download presentation

Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author.While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server.


- - - - - - - - - - - - - - - - - - - - - - - - - - E N D - - - - - - - - - - - - - - - - - - - - - - - - - -

Presentation Transcript


Banking finance technology forum 2005

Banking & Finance

Technology Forum 2005

Basel II – The Implementation PhaseSimon ToppingHong Kong Monetary Authority /City University of Hong Kong9 March 2005


Basel ii the implementation phase

Basel II – The Implementation Phase

  • HKMA’s approach to implementation:

    • Timing / available approaches

    • Consultation documents / guidance issued

  • Hong Kong banking industry’s implementation plans

    • Choice of approaches

    • Progress being made

  • Basel II in the context of other concurrent “regulatory” initiatives:

    • Is there a danger of over-regulation?

    • If so, what can we do about it?


Hkma s approach to implementation 1

HKMA’s approach to implementation (1)

Timing / available approaches:

  • 1 Jan 2007

    • Credit risk: basic, standardised & foundation IRB approaches

    • Operational risk: basic indicator & standardised approaches

    • Pillars 2 & 3

  • 1 Jan 2008

    • Credit risk: advanced IRB approach

  • 31 Dec 2009

    • End of transitional period

  • To be determined:

    • Operational risk: AMA approaches


Hkma s approach to implementation 2

HKMA’s approach to implementation (2)

Consultation documents / guidance issued:

  • October 2001 (12)

    • Proposed implementation approach (high level)

  • July 2003 (63)

    • Proposed implementation approach (detailed)

  • August 2004 (200)

    • Timing / available approaches

    • New “basic” approach

    • Scope of application (e.g. bank holding companies)

    • Standardised approach (e.g. retail / SME)

    • National discretions under standardised & IRB

    • Minimum requirements for internal rating systems / risk quantification under IRB


Hkma s approach to implementation 3

HKMA’s approach to implementation (3)

Consultation documents / guidance issued:

  • September 2004 (155)

    • Standardised approach (RMLs, past dues, collateral)

    • IRB application / recognition process

    • IRB self-assessment of compliance with qualifying criteria

  • December 2004 (42)

    • Draft Banking (Amendment) Bill 2005

    • Power to make capital rules & disclosure rules

    • Designation of BHCs

    • Upper level for minimum CAR increased to 16%


Hkma s approach to implementation 4

HKMA’s approach to implementation (4)

Consultation documents / guidance issued:

  • February 2005 (173)

    • Weighting framework for credit risk under standardised & IRB approaches

    • Credit risk mitigation under standardised approach

    • Criteria for transition to IRB approach

    • Weighting framework for operational risk

  • Coming soon…

    • Calculation of capital base

    • Credit risk under basic approach

    • Asset securitisation

    • Market risk

    • Pillars 2 & 3


Hong kong banking industry s implementation plans 1

Hong Kong banking industry’s implementation plans (1)

  • HKMA has made adoption of the more advanced approaches (i.e. foundation / advanced IRB) optional, stressing that each AI should weigh up the costs & benefits

  • It transpires that more AIs than originally expected plan to adopt IRB: 17 AIs comprising mostly the larger banks plus some smaller subsidiaries of foreign banks

  • This reflects the fact that there is now wider acceptance by the industry that Basel II can deliver real benefits in terms of improved risk management - & market expectations that major banks will adopt IRB


Hong kong banking industry s implementation plans 2

Hong Kong banking industry’s implementation plans (2)

  • Not all of the 17 will implement IRB immediately (transitional period runs to end-2009)

  • A number of small & medium-sized banks have also initiated IRB-type development programmes focused initially on developing internal ratings

  • AIs are making extensive use of external assistance (IT / model vendors, management consultants, etc.)

  • Around 40 RLBs & DTCs will adopt basic approach

  • HKMA has begun bilateral discussions with AIs on their plans

  • HKMA’s assessment is that the industry has “bought into” Basel II & is making good progress on implementation


Basel ii in the context of other concurrent regulatory initiatives 1

Basel II in the context of other concurrent regulatory initiatives (1)

  • In addition to Basel II, AIs also need to make concurrent changes to systems & procedures in relation to, e.g., changes in international accounting standards & new anti money laundering requirements

  • This could place a strain on management / IT resources, & create a cost burden

  • It also raises system integration & prioritisation issues

  • Is there, therefore, a danger of over-regulation?

  • If so, what can we do about it?


Basel ii in the context of other concurrent regulatory initiatives 2

Basel II in the context of other concurrent regulatory initiatives (2)

  • There are 5 main themes to the regulatory initiatives being pursued currently:

    • Stability of the banking system / protection of depositors

    • Improvement of risk management

    • Enhanced public disclosure / market discipline

    • Consumer interests

    • Wider public interests


Basel ii in the context of other concurrent regulatory initiatives 3

Basel II in the context of other concurrent regulatory initiatives (3)

“Stability of the banking system / protection of

depositors” initiatives:

  • Basel II

  • Deposit protection scheme

    “Improvement of risk management” initiatives:

  • Basel II

  • Commercial credit reference agency

  • Consumer credit data sharing

  • Supervisory policies on interest rate risk, FX risk, stress-testing, etc.


Basel ii in the context of other concurrent regulatory initiatives 4

Basel II in the context of other concurrent regulatory initiatives (4)

“Enhanced public disclosure / market discipline”

initiatives:

  • Basel II (Pillar 3)

  • Adoption of international accounting standards

  • Listing rules

  • Corporate governance initiatives


Basel ii in the context of other concurrent regulatory initiatives 5

Basel II in the context of other concurrent regulatory initiatives (5)

“Consumer interests” initiatives:

  • Basel II

  • Enhancement of securities regulatory regime

  • Customer complaints

  • Deposit protection

  • Code of Banking Practice

  • Product regulation

    “Wider public interests” initiatives

  • Anti money laundering & terrorist financing


Basel ii in the context of other concurrent regulatory initiatives 6

Basel II in the context of other concurrent regulatory initiatives (6)

From this long list it is clear that:

  • Basel II is a key initiative which is central to several of the themes

  • There is a real danger that, unless properly managed, the regulatory burden on AIs could become onerous, notwithstanding the worthiness of each of these initiatives in their own right

  • In large part this reflects a global trend towards increased regulation & is, therefore, unavoidable (e.g. adoption of international standards & best practices is necessary in order to maintain Hong Kong’s reputation as a well-regulated IFC)


Basel ii in the context of other concurrent regulatory initiatives 7

Basel II in the context of other concurrent regulatory initiatives (7)

However, in order to keep the regulatory burden manageable, & in keeping with a business-friendly orientation, the HKMA is committed to working with the banking industry (&, for that matter, LegCo & consumer interest groups) to try to get the right balance between the risks & rewards of regulation

For example, in relation to Basel II the HKMA has:

  • Consulted the industry extensively throughout

  • Liaised closely with AIs to ensure that the approaches

    offered, the timetable for implementation, & the

    qualifying criteria for approval, are acceptable to the

    industry


Basel ii in the context of other concurrent regulatory initiatives 8

Basel II in the context of other concurrent regulatory initiatives (8)

  • Made adoption of the advanced approaches optional

  • Developed the basic approach for smaller AIs

  • Put on hold the proposed regulatory regime for BHCs

  • Liaised closely with other supervisors to try to

    encourage harmonisation of requirements

  • Indicated a willingness to be pragmatic in relation to

    use test / validation

    Such an approach – a risk-based approach focusing on cost/benefit analysis, pragmatism, proportionality, & close co-operation with the industry – is aimed at ensuring that Hong Kong gets the right amount - & right type – of regulation


Basel ii in the context of other concurrent regulatory initiatives 9

Basel II in the context of other concurrent regulatory initiatives (9)

Basel II, which is modelled on banks’ own best practices, & can deliver benefits in terms of (1) stability of the banking system / protection of depositors, (2) improvement of risk management (3) enhanced public disclosure / market discipline & (4) consumer interests, is an example of the right type of regulation

The winners - in terms both of financial centres & of individual institutions - will be those who implement it most effectively – those who have the best strategy, the best solutions, & get their prioritisation right


  • Login