Risk Management and the Basel II Game: Market Updates At Halftime

by Cubillas Ding, November 15, 2005


London, United Kingdom November 15, 2005

The success of Basel II compliance programs in Europe remains patchy, despite the region痴 head start. A substantial number of institutions have made misjudgments and underestimations resulting in significant reinvestment or rework.

Basel implementation projects have achieved considerable momentum, at least in Europe, and to varying degrees in North America and Asia. But progress throughout Europe remains polarized, and it generally varies depending on regulatory oversight, bank concentration, and the degree to which institutions see themselves benefiting.

In a new report, " ," Celent examines how Basel II is impacting risk management practices, reviews the progress of implementations in North America, Europe, and Asia, and identifies opportunities to leverage regulatory initiatives.

What has emerged is not merely the fact that risk management is becoming more important, but also that accountability and oversight responsibilities for actively managing uncertainty and potential downsides are moving up the ranks, often to a board level.

Over the past few years, there have been advancements in risk management both from a risk quantification perspective and from an organizational integration perspective for credit and operational risks, with regulations like Basel II acting as catalysts for strengthening tools and practices at an enterprise level. But financial institutions have now come to a more realistic view of what they are expecting from preliminary compliance efforts, realizing the immense undertaking ahead to make Basel II initiatives deliver value beyond mere compliance, and at the same time juggling multiple regulatory programs effectively.

"In conversations with institutions, it is often surprising to find institutions addressing their regulatory initiatives piecemeal, even though there is potential for synergies between Basel II and different strands of regulation. Most institutions are only at very early stages in uncovering how they can optimize their regulatory initiatives," states Cubillas Ding, Celent analyst and author of the report.

"For the longer-term horizon, it remains to be seen whether institutions can afford to address regulations in a fragmented manner where there is such a high degree of cost involved. A piecemeal approach is unsustainable, and there are certainly specific areas where synergies can enhance cost-effectiveness in the long run," he adds.

This report also explains Basel痴 role in the overall evolution of risk management practices in the financial sector, describes challenges that firms are grappling with, and highlights trends and regulatory synergies that will characterize the end-game migration to the new Basel II regime.

The 34-page report contains 14 figures and tables.

of Celent's Retail Banking, Wholesale Banking, Retail Securities & Investments, Institutional Securities & Investments,  research services can download the report electronically by clicking on the icon to the left.  Non-members should contact info@celent.com for more information.


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Celent is a research and advisory firm dedicated to helping financial institutions formulate comprehensive business and technology strategies. Celent publishes reports identifying trends and best practices in financial services technology and conducts consulting engagements for financial institutions looking to use technology to enhance existing business processes or launch new business strategies. With a team of internationally based analysts, Celent is uniquely positioned to offer strategic advice and market insights on a global basis. Celent is a member of the Oliver Wyman Group, which is a wholly-owned operating unit of Marsh & McLennan Companies [NYSE: MMC].

Media Contacts

North America
Michele Pace
Tel: +1 212 345 1366

Europe (London)
Chris Williams
Tel: +44 (0)782 448 3336

Asia (Tokyo)
Yumi Nagaoka
Tel.: +81 3 3500 3023

Table of Contents



London, United Kingdom November 15,  2005


Return to report Abstract

Executive Summary 3
Introduction 5
The Regulatory Backdrop 6
  Putting Regulations in a Strategic Context 6
  Not All Regulations Are Created Equal 7
Basel II and Risk Management 9
  Risk Management Becoming a Board-Level 13
  New Order of Governance, Risk, and Compliance 10
  Evolution of Risk Management Practices 12
  How Institutions are Migrating to the Basel II Regime 14
Looking Ahead - Emerging Trends 16
  Progress of National Jurisdictions 16
  Dynamics That Shape Basel II Adoption 20
  Risk Transfer Mechanisms Under the New Basel II Regime 21
  Where Regulators are Collectively Focusing 22
  Data Integration Efforts and the Middle Office 25
  The Search for Regulatory Synergies Continues 27
  How Will Risk Link Into Profitability and Capital Management Practices 30
Conclusion 32
Objectivity & Methodology 33

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