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Part - III

• Supervisory review process. The supervisors need to ensure that each financial institution adopts effective internal processes in order to assess the adequacy of its capital based on a comprehensive evaluation of its risks. Supervisors will intervene if the risk of a bank is greater than the capital it holds.

• Effective use of market discipline. It aims to improve market discipline through enhanced disclosure by financial houses. This will include the method a bank adopts to calculate its capital adequacy and its risk assessment.

Basel II - Key Drivers

• Data and IT systems. The most significant issue facing banks in relation to Basel II is aligning and upgrading data and existing IT systems for consistency and integrity across the organization. Systems must be compatible with the existing IT architecture, must provide suitable reporting facilities, and must support internal credit risk ratings analysis. Banks, especially if they want to achieve the advanced IRB (Internal Ratings Based) and measurement approaches for credit and operational risk, must start implementing these systems.

• Program governance. Executive-level Basel II champions must seize the initiative and remove all hurdles to a successful Basel II compliance. The role and responsibilities of each individual and department must be clearly defined to avoid confusion, especially with regard to operational risks, since many institutions are not yet convinced about the need to install operational risk systems.

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* Contributed by -
Vipul Mittal & Saurabh Singh,
Ist Year, MBA (Global),
Institute of Management Technology (IMT), Nagpur.