Basel II – FAQ
- Who is concerned ?
All banks in the G10 countries, fund management companies, and other financial companies. The European commission
has issued a directive that concerns all banks and investment firms within the European community.
- Which approach to choose?
Different methods exist, but big international active groups will have to use the IRB approach in the credit risk
domain and at least the standardized approach for the operational risk. The approach should be uniform within the
group and chosen at group level. Exceptions are however possible.
- Which history to choose?
For the advanced approaches histories of the 5 years and 7 years are required. For starting in the year 2007
different histories have been reduced to 2 years. This means that it should have been necessary to start the data
collection process end 2004.
- When does my IRB organization have to be in place ?
The use-test implies that the organization is in place and works for more than 3 years when applying for the IRB
approach.
- When does my AMA organization have to be in place ?
The use-test implies that the organization is in place and works for more than 3 years when applying for the AMA
approach.
- What happens if I do nothing ?
- The bank will change over to the standard method in January 2007.
- As it will not have set up a risks management organization it will not be able to benefit from any reductions
in its capital charge. (Securities are not taken into account)
- Credit granted to credit purchasers with a rating below AA-, will be subject to an average capital charge
higher than that required by Basel I.
- The supervisory authorities will consider the bank's risk profile (credit risk + operational risk + market
risk + liquidity risk + rates risk) and will be able to alter the capital charge requirements.
- What are the supervisory authorities' powers of intervention?
- Prohibiting or limiting certain activities.
- Limiting the use of capital charge relief factors.
- Prohibiting and limiting the use of certain funds.
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