Basel III: Navigating Business and Risk Technology Architecture Decisions

by Cubillas Ding, June 28, 2011
Vendor Reviews
Global, Asia-Pacific, EMEA, Latin America, North America

Abstract

Firms should chart a clear view of what they want to achieve to support an evolutionary path towards end game risk management capabilities before building, selecting, or blending Basel toolsets.

In its third installment, Basel regulation’s bank capital requirements have become increasingly onerous and "additive" because more types of risks and capital buffers have to be taken into account. Even against a backdrop of global regulatory reforms, Basel III solvency and liquidity regulations will represent one of the largest drivers of industry economics for the banking world in this coming decade. From operational overheads, leverage constraints and a capital lock-in perspectives, Celent expects banking organizations’ return on equity to be negatively impacted by as much as 3–5%.

In this report, Basel III: Navigating Business and Risk Technology Architecture Decisions, Celent examines the elements required to ensure an sufficient level of preparedness at this "early" juncture and the road ahead for financial institutions and technology solution providers. As firms navigate this regulatory chessboard of options and rules, they need to bear in mind business and risk management imperatives, as well as avoiding being "too far behind" in their IT strategy and architectural considerations.

"With turbulent headwinds in markets and constraints in capital already prevalent, we are seeing firms face greater pressures to optimize and align Basel III investments and delivery in order to draw value-added capabilities for the institution," says Cubillas Ding, Research Director at Celent and author of the report.

Continuing on Celent’s series on Basel III and risk, this report assesses the road ahead for financial institutions, compares and contrasts the current and emerging Basel regimes, and provides recommendations for firms to navigate this transition from a strategic business and technology perspective.

Celent is a research and advisory firm dedicated to helping financial institutions formulate comprehensive business and technology strategies. Celent publishes reports identifying trends and best practices in financial services technology and conducts consulting engagements for financial institutions looking to use technology to enhance existing business processes or launch new business strategies. With a team of internationally based analysts, Celent is uniquely positioned to offer strategic advice and market insights on a global basis. Celent is a member of the Oliver Wyman Group, which is a wholly-owned subsidiary of Marsh & McLennan Companies [NYSE: MMC].

Media Contacts

North America
Michele Pace
mpace@celent.com
Tel: +1 212 345 1366

Europe (London)
Chris Williams
cwilliams@celent.com
Tel: +44 (0)782 448 3336

Asia (Tokyo)
Yumi Nagaoka
ynagaoka@celent.com
Tel.: +81 3 3500 3023

Table of Contents

Executive Summary

3

Introduction

5

Looking Back, Looking Forward: Basel Banking Regulations

6

 

The Chessboard of Basel Reforms

6

 

Anticipating the Impact of Basel III on Internal Organisation Capabilities and Technology

7

How to Prepare?

11

 

Business Imperatives

11

 

Technology Imperatives

13

Final Thoughts

23

Appendix A—Basel II / Basel III and the Risk Management Ecosystem

24

Basel II / Basel III and the Risk Management Ecosystem—Primary Components

24

Peripheral Applications and Ecosystem Linkages

25

Appendix B—Basel II / Basel III Solution Considerations

27

Appendix C—Basel II / Basel III Risk Solution Vendors

30

Leveraging Celent’s Expertise

31

 

Support for Financial Institutions

31

 

Support for Vendors

31

Related Celent Research

32

Sign in to download reports and access personalized information