29 April 2003

BdB: Further Test Calculations on Basel II required

The Association of German Banks (BdB) sees the Basel Committee on Banking Supervision's third consultative paper as a major step forward on the way to a reform of the Basel Capital Accord (Basel II). It says that the consultative paper now needs to be examined carefully and discussed in detail with supervisors, also because there are still many areas that have not yet been dealt with conclusively. These include, for example, the treatment of equity exposures, the rules on specialised lending and particularly the capital needed to cover so-called operational risk.

The evidently overly procyclical impact of the new rules still gives cause for concern in the BdB's view. It believes that further test calculations are required even after completion of the consultation phase so that this impact can be assessed more accurately. According to the BdB, any extra pressure on banks to reduce their lending in an economic downturn in order to comply with the capital rules must be avoided. Banks should also be given capital incentives to move to the advanced approach, something that has not yet been ensured.

“These effects therefore needed to be analysed further”, said Dr. Manfred Weber, General Executive Manager and Member of the Board of Managing Directors of the BdB. 'In the forthcoming third consultation phase measures to dampen the procyclical effects must be sought. It is in the interests of the economy as a whole that any additional pressure on banks to reduce their lending during an economic downturn should be avoided.'

The figures reported still contained serious inaccuracies, as some elements crucial for determining the size of capital requirements, e.g. the definition of the time of default on a loan, could not yet be taken into account adequately in QIS 3. The BdB therefore believes that additional test calculations are essential even after completion of the forthcoming consultation phase. Also to ensure global uniformity in the quality of the results, a further impact study should be conducted this year before adoption of the New Capital Accord.

© BDB - Bundesverband Deutscher Banken