Banks to benefit from delaying Basel compliance

04 May 2004

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According to a report released by Cass Business School, UK banks could make substantial savings by delaying compliance with controversial and costly new international regulations set out in the final version of the Basel II Accord. The FSA is allowing UK banks to choose whether they adopt basic or more advanced levels of compliance to 'Pillar 1' of the new regulations when it is implemented in 2007. They can choose between standardised capital allowances for credit risk, broadly similar to those in the old 1988 accord, or capital allowances based on their own internal ratings of risks. Research into the cost benefits of the two levels of compliance by senior finance lecturer at Cass Business School, Dr Alistair Milne, with Tim Giles of Charles River Associates, has shown banks could save substantial amounts of money by setting their own, slower, timetable for advanced compliance. The recently released finalised accord, which has been created by the Basel based International Committee on Banking Supervision and Regulation, has taken five years to fine-tune. The accord sets new international standards for prudential bank regulation, protecting bank customers and the wider economy against the risks of bank failure. It will be implemented in European law through a new capital adequacy directive.