Banks that choose an integrated, information-led response to the provisions of the Basel II Accord, will not only meet its criteria by way of risk control and reporting, they will also embrace the incentive side of the equation. The ability to optimise capital allocations and release capital for investment through advanced supervisory compliance, offers a major new competitive and business value discriminator.
There is an additional ROI to institutions that embrace the vision and the solution. Not only do they win on risk and direct reward, there is an opportunity for indirect business benefit from harnessing the information required by the new supervisory provisions.
It is universally accepted that the Basel II supervisory regime needs updating to reflect new risk factors. The Accord itself can act as a catalyst for new rewards.
The entire value chain in banking will be revolutionised; organisations which maximise their supervisory freedom, optimise the allocation of capital, and use information proactively to drive business decisions will — almost over night — achieve competitive superiority.
The new Accord will be universally implemented by 2006, but banks should look beyond mere compliance. The degree of data reconciliation management and reporting Basel II requires, in operational risk, supports everything from maintaining the general ledger, to enhancing HR systems, to implementing a CRM program with benefits to financial, operational, admin and marketing.
Banks that are best placed to reap the direct and indirect rewards of Basel II’s provisions will align: risk and compliance, business drivers, distribution channels, information systems, front and back office processes, supply chain management, customer-led strategy.
Banks that prepare for Basel II too narrowly are missing the point: that Basel II privileges quality of information and incentivises its use and visibility. Maximum benefit from the collation of the information comes from integration, accessibility, transparency, and speed and comprehensiveness of the information resources.
When considering Basel II compliance, banks need to give adequate attention to the technology platform and architecture. Data is fundamental to the entire process — banks need to harness the most powerful data warehouse technology available. By complying with the Basel II Accord, managers at every level of the organisation will be able to access far greater levels of information.
Brett Kennedy is director, services industries, Oracle Australia