The 3 pillars of the Basel II accords

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The Basel II Accords / Basel 2 focus on three pillars:

1. Quantitative requirements: asset measurement, Passives, provisions, capital, etc.

All banks must have a minimum technical provision with respect to their credit exposure, In other words, must have a minimum capital in cash. Thus, according to its specific characteristics, Each entity must undergo a data and process standardization procedure to offer guarantees against exposure to operational risk., credit and market.

The correct calculation of risk level is determined by precise variables that depend on an ecosystem of data that are often scattered and that can be altered at any time. Day-to-day banking activity can cause that data to be duplicated, inconsistent, invalid, incomplete or even non-existent. In order to make the calculation, it is necessary to have controlled the data and the processes on which they depend. Incorrect or incomplete information is difficult for risk modeling and analysis.

The breach of these precepts implies the application of sanctions and coercive measures as well as an increase in the cash ratio.

2. Supervision and qualitative review procedure

The jurisdiction of each country maintains a monitoring system to ensure that its banks comply with the relevant rules and requirements for the use of alternatives, including discounts, limits and associated restrictions. This procedure includes information requirements on the types of data, their relationships / dependencies, how and how often this information should be provided and how the data will be used.

These countries establish the way in which the correct application of the relevant standards and requirements by banks will be monitored.. This can be done through remote analysis of the information collected, prudential interviews with banks and on-site examinations, as necessary.

Supervisors have procedural tools and powers to examine compliance with specific requirements. Between these, have general powers to impose reports and access to your data in banks. In the event that they fail to comply with the requirements that apply to them, may urge the issuance of directives to banks, the limitation of financial activities, the imposition of economic sanctions, the capital increase of the Second Pillar, etc. . Learn more about the Basel Accords with the free e-book “The Basel Accords and data management”.


3. Transparency: reporting and publishing

Recommendations are established on the need for entities to provide clear information on their risk profile, as well as on the activities and controls used to mitigate the risks assumed. It is a guide on the information that banks must publish to give greater transparency to structure and capital adequacy, and the risk exposure of the institution.

The data used in these reports must be true, In other words, once the information is public, data must be justifiable and consistent.

Lessons learned from Basel II

  • Good data governance is necessary. There is a need to control / monitor issues such as where each piece of data comes from / value and what is your final destination. Avoid deviations, mismatches, duplications, etc.
  • Making decisions on time means having reports as soon as possible. Being able to report in real time the status of our assets, credit operations and the situation of our clients, It will allow us to identify incidents before they lead us to take charge of files and sanctions.
  • Regulators require banks to adapt their processes quickly and not pay attention to the idiosyncrasies of their assets or the investments made.. That is why it is essential to be able to react as soon as possible on issues such as effective data management.
  • Data quality must be measured and reported to justify our reports.
  • Key attributes of banking products must be tracked proactively, clients and associated processes.
  • Banking entities must have the ability to react and effectively manage their clients' risk exposure / partners, in order to correct possible errors in time.
  • They have to adapt their operation to be able to move at all times to the rhythm of the regulator, depending on the evolution of the economy and the specifications of each country.

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