09 January 2013

Basel Committee issues "Principles for effective risk data aggregation and risk reporting - final document"

The financial crisis that began in 2007 revealed that many banks, including global systemically important banks (G-SIBs), were unable to aggregate risk exposures and identify concentrations fully, quickly and accurately. This meant that banks' ability to take risk decisions in a timely fashion was seriously impaired with wide-ranging consequences for the banks themselves and for the stability of the financial system as a whole.

The principles published today are intended to strengthen banks' risk data aggregation capabilities and internal risk reporting practices. They complement other international initiatives underway and will allow banks to comply effectively with them. Implementation of the principles will strengthen risk management at banks - in particular, G-SIBs - thereby enhancing their ability to cope with stress and crisis situations.

This paper presents a set of principles to strengthen banks’ risk data aggregation capabilities and internal risk reporting practices (the Principles). In turn, effective implementation of the Principles is expected to enhance risk management and decision-making processes at banks.

The adoption of these Principles will enable fundamental improvements to the management of banks. The Principles are expected to support a bank’s efforts to:

• Enhance the infrastructure for reporting key information, particularly that used by the board and senior management to identify, monitor and manage risks;
• Improve the decision-making process throughout the banking organisation;
• Enhance the management of information across legal entities, while facilitating a comprehensive assessment of risk exposures at the global consolidated level;
• Reduce the probability and severity of losses resulting from risk management weaknesses;
• Improve the speed at which information is available and hence decisions can be made; and
• Improve the organisation’s quality of strategic planning and the ability to manage the risk of new products and services.

Strong risk management capabilities are an integral part of the franchise value of a bank. Effective implementation of the Principles should increase the value of the bank. The Committee believes that the long-term benefits of improved risk data aggregation capabilities and risk reporting practices will outweigh the investment costs incurred by banks.

For bank supervisors, these Principles will complement other efforts to improve the intensity and effectiveness of bank supervision. For resolution authorities, improved risk data aggregation should enable smoother bank resolution, thereby reducing the potential recourse to taxpayers.

In this regard, Stefan Ingves, Chairman of the Basel Committee on Banking Supervision and Governor of the Sveriges Riksbank, said "these principles are a significant step towards improving banks' risk management capabilities and they will also contribute to G-SIBs' resolvability, hence reducing the potential recourse to tax-payers".

G-SIBs are required to implement the principles in full by the beginning of 2016 at the latest, and the Committee will be monitoring their progress towards meeting this deadline. In addition, the Committee strongly suggests that national supervisors apply these principles to institutions identified as domestic systemically important banks three years after their designation as such. Finally, the Basel Committee also believes that the principles can be applied to a wider range of banks, in a way that is proportionate to their size, nature and complexity.

Press release

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