If theBasel Committee goes ahead with its proposed operational risk-based capital requirements, the Financial Services Roundtable warned in a May 31 comment letter, banks may shift asset management and other activities out of banks and into riskier non-bank affiliates. Furthermore, it said, for another kind of risk, credit risk, bank internal models are "simply not ready for use as a regulatory capital standard."
Finally, the trade group insisted, if the Basel 2 accord is implemented in a way that forces banks to set aside more capital, "we face the real prospect of a repeat of the 1988 credit crunch." That was so particularly for Japan, the Roundtable claimed, pointing out that Japanese banks "are significantly under-capitalized under the current regime and likely would be even more so under the new one."
The letter said there was worry as well that the rules would impact banks competing against each other in drastically different ways. "Care must be taken," it said, "that the variance of capital requirements around the mean is not so wide as to result in a regulatory capital standard that creates big winners and big losers, with very few institutions facing a modest or neutral impact."
But its biggest single concern, the FSR emphasized, was that the capital requirement for operational risk might far exceed what was needed against the actual risk of loss banks face. That, it said, "could exacerbate the competitive balance between bank and non-bank firms."