A massive incomprehensible juggernaut rushing down on them too fast with too many hidden parts is how even the most sophisticated banking institutions were reading the Basel Committee second capital accord when the deadline Basel set for commenting on it expired last Wednesday. Despite the May 31 deadline, an official of the American Bankers Association said last week that ABA would not be ready with comments on the incomplete draft Basel had put out until mid or late June and suggested October as a target for more definitive comments on what ABA's members think of the completed draft.
This was sharply at odds with the intentions of the Basel central bankers group, known formally as the Basel Committee on Banking Supervision. Basel wants to move more swiftly. Last January it put its document out for comment and said then it wanted the accord for risk capital completed in final form by the end of this year. It added that full implementation was to take place in 2004. But industry reactions now, after grappling with the fine print in this huge document, suggest that time line is highly optimistic.
"It's like trying to get your arms around Jello--especially for a very complex organization," said a member of the legal department at one very large institution. A spokeswoman for the Financial Institutions Roundtable said its letter to Basel would, when turned in, ask for a delay in the 2004 implementation date. As for coming out with the final draft this year, the Bond Market Association said in its letter "it is increasingly becoming apparent that such a goal may be impossible to reach given many of the completely new or incomplete concepts set out in the proposals."
Back on May 16, ABA recognized the futility of its commenting by the deadline and sent a warning note to Basel, co-signed by bank trade groups for Canada, the European Union and Japan. Among other things, the note said that in a number of areas Basel "has either published [since the original document came out in January] detailed proposals that are completely new or has indicated that the proposals were not yet complete, and that finalized proposals would follow." ABA and the others asked that Basel get the missing pieces out by August and after that give the banks a "reasonable" period in which to comment.
Bankers were not merely baffled by the enormous accord document, they worried that it would have the result of forcing them to jack up the amount of capital institutions were required to hold. Said Norman Nelson, general counsel of the New York Clearing House Association, "Banks are eager to have something much more risk-sensitive [to govern capital allocation]. Yet most of our banks think the effect of the plan as it is would be to require [banks to hold] more capital."
Concerns on that score could add intensity and length to the rising dispute pitting many bankers in many countries against the international group of regulators at Basel on a vast array of bank capital issues. Bottom line, said Gilbert Schartz, partner in Schwartz & Ballin, "for the foreseeable future, we will be operating under the 1988 Basel Committee Accord One." That original capital accord did not take into account variance in risks but instead set an 8% across the board requirement.