Basel II final paper delayed until 2003

Global banking regulators now expect to issue their final version of the complex and controversial Basel II bank capital adequacy accord “some time next year” rather than by the end of this year as previously hoped.

They remain unchanged in their aim of bringing the accord into effect for large international banks in 2005. But some bankers think the latest delay means Basel II won’t be in force until 2006.

“We’re doing what it takes to get Basel II right - our primary intention is take make well-informed decisions,” said one regulator.

Slippage in the timetable for the final document could endanger the European Commission’s schedule. The Commission wants to introduce risk-based capital adequacy rules that are closely modelled on Basel II, for all banks and investment firms in the 15-nation European Union in 2005.

The slippage came as regulators with the Basel Committee continued to wrestle this week with problems over the treatment of securitised assets and bank lending to small- and medium-sized enterprises (SMEs).

Regulators said considerable progress was made on the issue of securitised assets – bonds or notes backed by accounts receivable on, for instance, credit cards – at this week’s capital task force sub-group of the Basel Committee, but declined to give details. They also said progress was made on the SME issues – the German government has threatened to veto Basel II unless regulators relax plans for making banks reserve more capital against longer-term lending to SMEs.

A key survey known as the third quantitative impact study, or QIS3, which will seek to gauge the effects of Basel II on banks, is now unlikely to be issued to banks before mid-May. The Basel supervisors initially hoped to issue QIS3 at the end of March.

This means the Committee’s third consultative paper (CP3) on Basel II is targeted for release by end of this year. CP3’s publication will be followed by a 90-day period, when the banking industry can comment on the proposals – hence the shunting of the date for the final document into 2003.