The latest set of guidelines expected to be issued by the end of this year by the Basel Committee on Banking Supervision will lead to "massive system upgrades" by global banking institutions, according to David Kelly, director of credit products for Quantifi, a financial software company that provides numerical models, pricing and risk analysis tools.

The spending will be "across the board" on hardware, software and integration, he said. But the "biggest challenge is data,'' he said in midtown Manhattan Wednesday.

Data will be the biggest challenge as the banks collect information on all the different types of transactions they engage in in stocks, bonds, derivatives and other assets and then run them through scenarios that allow them to better calculate the risks they face, the values of their assets and the reserves they must keep on hand, he said.

Firms will have to maintain detailed information on "all these positions in from all the desks before they can calculate their positions" under current or projected economic and market conditions, he said.

For a bank the size of Citigroup, there can be a million positions to be calculated and 10,000 or 50,000 different "paths" to run the numbers on, he said.

This effort will cost about $100 million per bank, although that expense could be spread over as many as 10 years, depending on how fast the bank moves to meet the guidelines of this third Basel accord -- which has not yet been finalized.

A comment period on the “Strengthening the Resilience of the Banking Sector” documents, often referred to as ‘Basel III,' ended April 16. The Basel committee hopes to release final documents by the end of this year and see adoption and implementation of the guidelines in major countries by the end of 2012.

"Banks want to optimize their capital more. They kind of have to," Kelly said.

The United States, he noted, still has not adopted the guidelines of the second Basel Accord, initially published in 2004. And has not set a timeline for adoption of the third set of guidelines.

The new guidelines, in general, ask banks to set aside a variety of charges for greater risks that the capital they own face, including volatile economic conditions, the disappearance of counterparties, securitization riks and the transfer of credit risk.

The new Basel guidelines, he said, are widely seen as more conservative and more stringent than the financial regulatory reform now being reconciled in the U.S. House and Senate.

A reconciliation that likely will take place by the July 4 holiday, he noted.

Months before the Basel III guidelines are finalized.


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