The proposal by the Basel Committee on Banking Supervision in January to revise Basel II highlights the relevance of the accord today. Regulators and banks are still working on Basel II projects and more of them are looking at Pillar 2, which covers the full spectrum of risks.
“Basel II recognises, in its Pillar 2, that a holistic assessment of risks, risk management and governance, need to be addressed in this assessment,” says Noel Gerald D’Cruz, head of risk portfolio management and group risk management at Singapore’s OCBC Bank. He says his bank will focus on “ensuring that the internal ratings continue to be robust, and integrating these parameters into business use and portfolio and capital management for forward looking assessmentsю”
This signals a relatively promising future for Basel II compliance applications providers, amid slowing IT spending in the financial sector. One vendor, Oracle Financial Services Software, formerly Mumbai-based i-flex applications, introduced two Basel II applications on February 10th. The offerings, Oracle Reveleus ICAAP Analytics and Oracle Reveleus ICAAP Assessments, aim to help banks comply with the internal capital adequacy assessment process (ICAAP) requirement under Pillar 2 of the Basel II accord.
“Oracle Reveleus ICAAP furthers our industry-leading enterprise risk management (ERM) offering for financial services and provides institutions with a holistic, enterprise-wide view of risk and capital management while simultaneously helping to achieve mandated regulatory compliance,” says S. Ramakrishnan, CEO, Oracle Mantas and Oracle Reveleus.
These applications will enable financial institutions to identify and assess risks, quantify scenario-planning processes for stress testing and manage their ICAAP across the entire organisation, says Ramakrishnan. “Nobody is doing it at an ERM level, absolutely nobody,” says S. Ramakrishnan. “These offerings can help banks manage their capital processes much better than what they were able to do in the past.”
Ramakrishnan is bullish about the demand for these products. According to him, prompted by the crisis, banks need to prove to shareholders and regulators that they are on top of their economic capital planning processes. “I don’t see a way out of this, other than solving the problems.”
There are two types of target customers, he explains: institutions driven by regulatory pressures and proactive banks in less developed economies. In the end, ICAAP is an essential process no bank will be able to skip, “regardless of regulatory requirement.”
While Oracle touts these offerings as the market’s first ICAAP applications, competitors may not necessarily agree. “It’s just a marketing package. There is nothing new in that,” says a senior executive at a major risk management solution provider, who declines to be named. “Fundamentally, ICAAP is simply a name regulators have given to banks on internal economic capital systems… If you launch a new ICAAP solution, you basically launch a new suite of economic capital systems. There are plenty in the market.”
D.C.