Friday, October 13, 2006

Basel II Implementation: When is the Deadline?

Switzerland Adopts Basel II Framework:
RBI to announce Basel II guidelines:

Basel II – US no closer to consensus:
Banking sector divided over Basel II deadline:

The Basel Committee on Banking Supervision adopted the Basel II Accord as the new capital adequacy regulations for internationally active banks. Basel II aims to align global bank capital standards and introduces new formulas to more closely tie capital requirements to asset risk, replacing a less-differentiated standard in force since 1988. Initially, internationally active banks were to implement the regulations by year-end 2006, but many concerns and disagreements over the guidelines has delayed implementation.

On September 29, Switzerland adopted the Basel II framework and announced that the country’s banks must adhere to the regulations beginning on January 1, 2007. Additionally, Switzerland’s Federal Council formally incorporated the Basel II guidelines into Swiss law. However, other countries are struggling to begin implementation, as deadlines are continually being extended.

On September 26, India’s central bank, the Reserve Bank of India (RBI), announced, “[w]e will post the final guidelines for implementation of Basel II norms in the next couple of weeks.” However, the guidelines have not been posted and the Indian banking industry announced yesterday that it is divided over the March 31, 2007, deadline for Basel II implementation. Many are calling for an extension of the March deadline. According to MBN Rao of the Canara Bank, “[p]ublic sector banks in India may need some more time to put in place the required management information system (MIS) for implementation of Basel II norms…. Marginal extension of the deadline is desirable.” On the other hand, PP Mallya of the Vijaya Bank, noted that they are on schedule to meet the current deadline.

Furthest from implementation of Basel II is the U.S.: “With agreement in most countries as to the implementation of Basel II, the USA appears to be no closer to consensus on the approaches, conditions and timing of its own implementation.” The consultation process of Basel II is in progress and is likely to end in January, 2007. However, the U.S. will not fully adopt Basel II until 2009, a full year later than global adoption of Basel II is expected.


1. Do you think Switzerland’s adoption of Basel II will urge other countries to adopt Basel II before year-end?

2. What are the main factors contributing to U.S.’s delay in Basel II implementation? Is a 2009 deadline attainable?

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