Financial institutions are ill-prepared to deal with Basel II credit risk assessment regulations, according to a new report from Meridien Research.
The report, "The Credit Risk Data Puzzle: Do You Have All the Pieces?", suggests most financial institutions will find difficulty in complying with new Basel regulations regarding the collection and use of data surrounding banks' credit assessment and management practices. This is primarily due to the availability and organisation of the myriad data necessary for an internal ratings-based approach to calculating capital charges.
The research reveals that within financial institutions, the breadth of existing systems and departments housing subsets of the necessary data is huge. In addition, given the newness of these regulations, the market for products to assist in various aspects of compliance is immature, fragmented, and ill-defined.
According to Peter Keppler, senior analyst at Meridien Research and co-author of the report, this will force many institutions, at least in the short-term, to look to consultants and systems integrators for assistance in satisfying these new regulations.
Keppler concludes: "The Basel II accord will force financial institutions to devise an enterprise approach to credit data management to facilitate compliance in order to use the more advanced capital methodologies."