Basel III for risk management and operational efficiency

As the new UK coalition government struggles to get the economy under control, and others across Europe continue to brace themselves for the uncertain times ahead, the question of how to prevent a similar financial crisis occurring again in the future is at the top of the agenda for all stakeholders - both from the political groups and financial services alike.

The Basel Committee on ‘Banking Supervision’ is set to introduce the third instalment of the international agreement. Basel III will specify both the level and quality of the minimum capital that banks are required to put aside to safeguard against financial and operational risk - a problem which has been keenly felt in recent years, and one embodied by the global financial crisis.

As such, the question on everyone’s mind now is how will the banking industry ensure compliance with this new accord?

The key aspects of Basel III include:

• Tighter rules for core tier-one capital
• A higher minimum ratio of tier-one capital to risk-weighted assets to a determined level
• An increased capital requirement for trading books
• A new borrowing ratio that would cap the size of a bank’s overall assets relative to its tier-one capital

All these aspects require an increased focus on effective usage of systems to ensure compliance and more analytical and reporting tools to track and highlight non-compliance. There is also an opportunity to use the large amount of data collected for Basel III reporting for better risk management. Senior executives are using increased regulatory pressure as an opportunity to ask for and get greater drill down ability into the data and a clearer picture of their exposure with counterparties

Ultimately, the key to successful compliance for banks is through flexible and scalable systems that enable them to respond quickly to changing market conditions through effective decision making.  The right technology will provide a complete 360 degree view of the business instantaneously, as well as play a crucial role ensuring compliance is met and that future accords are easily adjusted to.  Banks have the opportunity to put in place an effective framework capable of multi-disciplinary change to enable them to shift their strategic and operational priorities as required.

The correct framework is not just essential in helping banks to achieve compliance, but is also crucial for banks’ to maximise their opportunities for growth, while minimising the risks that come with large-scale business transformation.  Basel III offers all banks the opportunity to minimise risk to their operations, and tighten their measurement systems for key operational metrics, and then take advantage of technology to use the data for better decision making to more effectively achieve growth.