Financial Institute Concerned at Basel II Inconsistencies

The Institute of International Finance (IIF) has criticised the final version of the Basel II capital accord because of concerns that its proposed implementation across international markets will not be sufficiently consistent. Originally drafted in January 2001, the latest version of Basel II was finally released on 26 June. The document has no legal powers of enforcement, but provides a common framework across jurisdictions for supervisory regulations governing the capital adequacy of internationally active banks. Although the IIF commended the Basel Committee for showing ‘intellectual leadership’, the institute also said: ‘Much remains to be done for Basel II to deliver the full benefits of a level playing field… Appropriate coordination between home and host supervisors is at the top of the list. Operation under the accord can become costly and perhaps difficult to manage if banks are subjected, for example, to inconsistent interpretations, duplicative requirements for information, or repeated validation exercises by regulators.’ The Basel Committee plans to introduce the accord in stages during 2006 and 2007. But the IIF is concerned that the staggered implementation will lead to international inconsistencies.

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