Swiss and UK banks set to win as Japanese lose in Basel II

Swiss and UK banks are poised to be the main beneficiaries from the proposed new regulatory capital accord, Basel II, according to results from the Basel committee’s quantitative impact study 2.5 (QIS2.5).

The study, which compared how much capital banks would be required to set aside under the foundation credit approach in Basel II with the existing 8% rule in Basel I, found that Swiss banks would gain a 31% regulatory capital advantage and UK banks would be 28% better off. Japanese banks, by contrast, would be hit by an average increase of 30% in capital, according to senior banking officials.

UK and Swiss institutions benefit from more favourable treatment given to their relatively large retail portfolios; while the high probability of default on large Japanese corporate loans has had a negative impact on Japanese capital requirements.

QIS2.5 results were determined as confidential by the Basel Committee, which has been reluctant to publicly release international banking comparison statistics. The results were based on proposed changes to the credit risk calibration curve set out in a Basel paper on November 5. They are only part of ongoing impact studies, with a fourth survey, QIS3, set to be sent to banks in the New Year. This study will include data for the standardised and advanced internal ratings-based approaches for credit risk, along with advanced, foundation and standardised approaches for market and operational risk.

The results from QIS2.5 were more favourable for all financial institutions in all countries, compared with a previous study, QIS2, that used a steeper risk-weighting curve, sparking banker condemnation.