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The Current Status of Implementation of the New Basel Capital Accord by Domestic Banks
For the purpose of enhancing risk management capabilities of domestic banks and ensuring that capital adequacy regulations in compliance with international standards, the Financial Supervisory Commission of the Executive Yuan (the “FSC” henceforth) has made an official announcement of the revised “Regulations Governing the Capital Adequacy Ratio of Banks” and explanatory notes on the computation methods on January 4, 2007. The Basel II accord has been officially implemented from 2007.
Upon implementation of the Basel II accord for over one year, all banks have computed and declared their capital adequacy ratio in accordance with the revised standards. To facilitate the implementation of Pillar 2 and Pillar 3 of Basel II, banks have set their individual schedules (between April and September) to declare the relevant information to the FSC for evaluation of the capital adequacy of banks from 2008. In addition, banks are required to disclose qualitative and quantitative information of capital and risk management at a specific section on their official website. Information requiring disclosure includes the strategies and procedures for managing credit, market and operational risks, the organization and structure of risk management, risk mitigating policies and the capital requirement to cover the aforesaid risks. FSC will guide banks to gradually improve their risk measurement and management capabilities. Market participants may gain their understanding on banks’ risk management strategies and the quality of executing through appropriate information disclosure.
With the aim of realizing the spirit of the New Basel Capital Accord, banks have aggressively improved their risk management. The FSC has evaluated and approved five banks to compute operational risks by more advanced standardized approach till now. Sound control of banks’ operational risks and more effective utilization of bank equity may be ensured through establishment of operational risk management tools, collection of loss event information, and independent audits on operational risk management policies performed by the audit department. |