Basel 2 is a revised code on risk management that is due to come into force in 2006. Although it is a voluntary code few banks will be able ignore it. It aims to make banks' assessments of their loans and investments more sensitive to risk, such as multimillion-pound loan defaults or volatile global financial markets.
Banks that have the systems and framework in place to meet the more stringent risk management requirements of Basel 2 should be able to reduce their capital costs. Those that do not meet the conditions of the new code risk seeing their share price hit.
The IT implications of complying with the new code are enormous. IT directors will have to link a maze of database and risk management systems across the world, many of which are based on different technical standards. Data within these systems will also have to be verified.
This week, a leading industry consultant has urged IT directors to start drawing up a business case to convince departmental heads of the benefits of complying with Basel 2. If they are not already doing so IT managers need to start planning now.