IT chiefs must take a lead on Basel 2

IT directors in the banking industry need to promote the business benefits of complying with a revised code on risk management,...

IT directors in the banking industry need to promote the business benefits of complying with a revised code on risk management, according to a leading industry expert.

The New Basel Capital Accord, dubbed Basel 2, aims to make banks' assessments of their loans and investments more sensitive to risk, while reflecting technological developments in global markets.

Banks that can show an advanced level of risk management should be able to reduce their capital and long-term costs.

The accord, which comes into force in 2006, has far-reaching implications for corporate IT systems. IT directors will have to link a maze of banking databases and reporting systems, update older applications and ensure information in systems is accurate.

Banks will also need to draw up a plan to manage new risk-management systems after they are installed.

Analysts estimate that global banks will have to spend between £20m and £100m to comply with the requirements of Basel 2.

Pierre Pourquery, principal for risk management, Europe at IBM, said IT directors need to convince heads of departments within their banks of the business benefits of compliance.

"IT directors in the UK have to be much more business-aware," he said. "If they try to isolate themselves in an ivory tower they will suffer. [IT directors] need to draw up business cases to win over lines of business."

Although most financial firms will have to buy some new systems to comply with Basel 2, they should also look to adapt existing applications, Pourquery said.

What is Basel 2?

Basel 2 is a revised accord from the Swiss-based Bank for International Settlements, due to come into force in 2006.   The code aims to help banks take a more advanced approach to risks such as loan defaults, and to encourage transparency.  Banks have a choice of level to comply with, ranging from a standard framework to a more sophisticated approach.

Read more on IT risk management

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