Einleitung Basel II

Information Basel II Consequences for SEB’s Customers 1 INTRODUCTION................................................................................. 3 FROM BASEL I TO BASEL II ............................................................... 3 WHAT DOES IT MEAN FOR ME AS A BANKING CUSTOMER? .............. 7 Private individuals (Retail) customers ..................................................................... 9 Rating.........................................................................................................................9 Collateral ....................................................................................................................9 Small and Medium Size (SME) Customers.............................................................. 10 Rating....................................................................................................................... 10 Collateral .................................................................................................................. 11 Corporate customers .............................................................................................. 12 Rating....................................................................................................................... 12 Collateral .................................................................................................................. 12 SUMMARY ........................................................................................ 13 2 Introduction Many banking customers are starting to take an interest in ”Basel II”. The initial understanding may be that Basel II will bring a new set of rules for banks on how to calculate minimum level of required capital. Some customer may also be concerned about what it may bring of consequences for them as banking customers. In particular it may be of interest to know and better understand whether it will lead to changes in banking product offering and pricing. This brochure will give you the background of Basel II and some concrete recommendations how to turn the upcoming changes into your advantages. From Basel I to Basel II Banks are subject to international standards and requirements in a number of ways. One of these is the minimum level of capital that banks should hold against the risks that they are exposed towards. These international standards – commonly known as “The Basel Accord” or Basel I - was introduced by The Basel Committee on Banking Supervision (the Basel Committee1) in 1988, and came into effect in 1992. The Basel Committee supplemented the 1988 Accord’s original focus on credit risk with requirements for exposures to market risk in 1996. Since 1988, the Accord has been adopted progressively by more than a 100 countries, not only in member countries of the Basel Committee2, but also in virtually all other countries with active international banks. The Basel I was easy to apply. Banks’ credit risk exposure was slotted into one of four buckets and capital assigned accordingly (corporate exposures required €8 of capital for every €100 of loans; residential mortgages required only €4 of capital; bank senior debt required €1,60 and lending to governments no capital). Since the issue of 1988 Accord, the banking industry has undergone dramatic changes such as: • Increased globalisation, as a consequence of the growth in cross-border trade, finance and investment flows. • Technological advances in the area of hardware, such as computing-processing speed, storage capacity and telecommunications. • Innovations in financial engineering. Advances in risk-management practices, technology and banking markets have made the 1988 Accord’s into a simple approach to measure capital adequacy and no longer meaningful for many banking Institutions. As mentioned before, the 1988 Accord sets capital requirements based on broad classes of exposure and does not distinguish between the relative degrees of creditworthiness of individual borrowers. furthermore, improvements in internal processes, the adoption of more advanced risk-measurement techniques and the increasing use of sophisticated risk-management practices, such as securitisation, have changed leading Institutions’ monitoring and management of exposures and activities. Supervisors and sophisticated banking Institutions have found that the simple rules set out in 1 The Basel Committee is a committee of banking supervisory authorities that was established by the central bank governors of the Group of Ten countries in 1975. The Basel Committee does not possess any juridical power and legal force. The Committee formulates broad supervisory standards and guidelines and recommends statements of best practice in the expectation that individual authorities will take steps to implement them through detailed arrangements – statutory or otherwise – which are best suited to their own national systems. In this way, the Committee encourages convergence towards common approaches and common standards without attempting detailed harmonisation of member countries' supervisory techniques. 2 Basel Committee member countries: Belgium, Canada, France, Germany, Italy, Japan, Luxembourg, the Netherlands, Spain, Sweden, Switzerland, the United Kingdom, and the United States. 3 the 1988 Accord have not kept pace with advances in sound risk-management practices. This suggests that existing capital regulations may not reflect banks’ actual risk and business practices. In June 1999, the Basel Committee issued a proposal for a New Capital Adequacy Framework to replace the 1988 Accord. After five years of hard work and several extensive consultations with banks and industry groups, the Basel Committee published the International Convergence of Capital Measurement and Capital Standards: a Revised Framework in June 2004, the new capital-adequacy framework, commonly known as Basel II. On July 14, 2004, just a couple of weeks after the release of Basel II framework, the EU Commission issued their proposed Capital Requirements Directive (CRD) based on the Basel II framework. The final version of the EU Directive will be binding for all EU member states, however leaving a vast room for national discretion. The EU member states will issue national laws and regulations based on the EU Directive that might differ among Member sates following the publication of the final EU Directive. By redefining how banks world-wide calculate regulatory capital and report compliance to regulators and the public, Basel II is intended to improve safety and soundness in the financial system by placing increased emphasis on bank’s own internal control and risk management processes and models, the supervisory review process, and market discipline. While the Basel I addressed market and credit risk, Basel II substantially changes the treatment of credit risk and also requires that banks have sufficient capital to cover operational risk. It also imposes qualitative requirements on the management of all risks as well as disclosure. Basel II is built on three mutually re-enforcing pillars – minimum capital requirements, supervisory review and market discipline (see Figure 1 below). Pillar 1 Pillar 2 Pillar 3 Supervisory Market Minimum Review Capital Discipline Process of and requirements Capital to cover: Disclosure Adequacy: • Credit Risk To ensure banks Requirements that have good allow capital • Market Risk monitoring and adequacy to be management of compared across • Operational Risk risk processes institutions Figure 1 Pillar 1 is designed to provide the financial institution with a framework for the calculation of minimum regulatory capital requirement, while Pillar 2 provides firms and supervisors with the opportunity to review the risk management process and ensure that appropriate actions is taken if failure occurs. Pillar 3 is designed to allow for comparison to be made by other market participants and encourage market discipline. Pillar 1 (minimum capital requirement) consists of elements to cover credit and market risk and a new specific capital requirements for operational risk (the risk associated with internal failure of systems or people, or with external risk such as terrorism). The proposals offer a menu of approaches(from basic to advanced) for both credit and operational risk as depicted below.