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Banking: The Many Costs Of Risk

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From: TechWeb Business Technology Site


By <!– Title: New Page Fragment –>Steven Marlin Courtesy of <!– remove http:// substring (if present) from the url –>InformationWeek


<!-body->Financial institutions are grappling with complex data-integration issues as they aim to comply with the Basel II framework, an international agreement that places specific requirements on how banks compute the risk associated with their assets. U.S. companies have until January 2008 to comply with the framework, but given the amount of work involved, it will be a race to the finish.

Basel II was approved last year by the Bank for International Settlements, the governing body of the world’s central banks. It’s intended to motivate banks to upgrade and improve their risk-management systems, business models, and capital strategies by requiring that regulatory capital-the funds banks must set aside to cover losses from bad loans or other problems-be computed based on the riskiness of a bank’s assets. Central to this approach is letting banks create internal ratings systems for grading loans and other financial instruments and develop advanced measurement approaches for operational risk such as the likelihood of losses caused by unpredictable events.

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