Banks, regulators and the Basel Committee seem as far apart as ever, which doesn’t bode well for the new Capital Accord timetable.
It is crunch time for Basel II. If the current timetable of implementation on January 1, 2007, is to be met then significant progress and agreements need to be made in the coming weeks. The problem is that banks, regulators and the Basel Committee still seem to be far apart.
Earlier this year, the US regulators weighed in with their concerns and since then there has been a plethora of comment and criticisms.
While few disagree that reform of the capital adequacy accord is necessary, more than four years of negotiations have failed to find a common cause and countries such as China and India have rejected Basel II proposals altogether.
Complexity and cost continue to be major worries for banks but that is not all. In late September, Daniel Bouton, chairman of Société Générale and chairman of the bank-owned Institute of International Finance (IIF) steering committee on regulatory capital, gave a blunt assessment of the inadequacies of the Basel Committee’s new framework.
Lack of coordination
While the issues of managing procyclicality, recognising provisioning and diversification as well as capital incentives have been well-flagged criticisms, Mr Bouton also highlighted the insufficient coordination between the Basel Committee, the International Accounting Standards Board (IASB) and the banks.
The lack of dialogue between the IASB and Basel is seen as a critical problem and the IIF has proposed a three-way dialogue to help break the current deadlock.
If the implementation of Basel II is not to be delayed again to the end of 2007, as ECB president Wim Duisenberg recently speculated, then something has to happen fast. In Dubai, Jaime Caruana, head of the Bank of Spain and the Basel Committee, stressed the urgency of finalising the new accord. But can all the differences be sorted out in the weeks ahead?
Knocking heads
Bankers suggest Mr Caruana will be extremely busy in October. But whether he can knock heads together and forge an agreement remains to be seen – and is still doubtful.
If Basel II is not finalised in the weeks to come, it will prove not only embarrassing but damaging for all concerned. This is not Cancún; all the parties know what needs to done and it is within their grasp. They just need to have the will to do it – and do it now.
