With the Fed emphasizing newer risk management practices and banking organizations investing more in this core sector, the importance of risk management jobs in banks will only increase.
Experience in Europe and Canada has shown that the success of Basel II implementation aided by new technologies is based on the quality of the data that must be processed. Banks that have started Basel II implementation initially shopped around for a technology that could provide a solution to not only Basel II compliance, but also produce credit ratings scores and analyze the given bank's portfolio.
Selecting the technology solution, however, is only half the job. Implementation is a challenge as data must be integrated from many different sources within banking organizations. Basel II calculations of risk-based capital requirements are based on this integrated data. The European and Canadian banks found that the quality of the data available to them was insufficient and needed to be improved in order to produce the desired output. More than half of the resources spent on Basel II implementation went into cleaning up this data.
A Canadian bank's advice on speedy implementation of Basel II is to have members on the project team who understand the data and how it is used. Bank of New York established a formal Basel II compliance office headed by a senior portfolio management officer to facilitate the data development process. The team also included several senior project managers from the technology division.
Banking organizations that successfully comply with Basel II requirements will also be able to efficiently manage organizational risk and enjoy the benefits of lower capital requirements and the resultant advantages of sophisticated capital-allocation calculations. Other beneficial by-products of Basel II implementation include enhanced credit scoring, credit origination, and credit lifecycle management. Furthermore, anti-money laundering rules will also be simplified.
