The International Swaps and Derivatives Association (ISDA), RMA—The Risk Management Association, and the British Bankers’ Association (BBA) will present the results of their joint research on June 19 in New York City and on June 23 in London. Issues arising from the implementation of the advanced internal ratings-based approach in the New Basel Accord will be discussed at the one-day forum.
Philadelphia, PA (June 4, 2003)—The International Swaps and Derivatives Association (ISDA), RMA—The Risk Management Association, and the British Bankers’ Association (BBA) will discuss the results of their survey on the validation of banks' internal credit ratings, a key element underlying the Internal Ratings-Based (IRB) approach in the New Basel Capital Accord. The discussion will take place at two one-day advanced IRB forums at ISDA in New York on June 19 and at Pinners Hall in London on June 23.
The Survey examined validation processes for specific asset classes covered in the revised Accord, including corporate exposures, specialized lending, bank exposures, retail product portfolios, and sovereigns. Survey participants completed an extensive Web-based questionnaire and many were selected for follow-up interviews, which took place throughout January and February. PricewaterhouseCoopers served as consultants to the project.
The Associations decided to undertake the Survey after the Basel Committee on Banking Supervision, in its second consultative package, set out the minimum requirements financial institutions must meet in order to use the IRB approach. One of the requirements is for banks to demonstrate their capabilities to validate their estimates of default probabilities and the techniques used to assign internal ratings. Specific standards for validation, however, are left to the discretion of national regulators. The Survey is intended to provide guidance to regulators and the industry in this area for the implementation of the New Accord.
The Survey, which had the active support of major financial institutions and had been encouraged by leading financial regulators, does not recommend the adoption of specific methodologies or standards. Instead, the information gained through this research is intended to provide financial institutions and regulators with a better understanding of the wide range of validation techniques in use and how to implement them.
Bob Pickel, Executive Director of ISDA said that, “The study was the first global survey on industry practice in validation of internal ratings systems and therefore, its conclusions should play an important part in the current thinking on implementation of Basel II.”
BBA Chief Executive Ian Mullen said, “The study has important messages for the industry and its supervisors, not the least of which is that no single best practice exists and that judgement is central to current practice.”
RMA President and CEO Maurice H. Hartigan II said, “The study results will benefit financial institutions by facilitating the sharing of knowledge about current validation techniques and provide a benchmark to global industry practice. The study results also will benefit national regulators by providing an overview of the diversity of techniques among institutions in various countries. Further, the information should help avoid the adoption of inflexible or overly prescriptive standards that could lead to reduced incentives for continued innovation and improvement of existing methods and models.”
For further information please contact:
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British Bankers’ Association
Simon Wills, Director: 44 (0)20 7216 8841
Brian Capon, Press Office: 44 (0)20 7216 8810
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International Swaps and Derivatives Association
Ed Duncan, Assistant Director: 44 (0) 20 7330 3574
Louise Marshall, Head of Communications: 001 212 901 6014
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Risk Management Association
Pam Martin, Director: 215-446-4092
Kathie Beans, PR Manager: 215-446-4095
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PricewaterhouseCoopers
Andrew Gray, Partner: 44 (0) 20 7583 5000
About ISDA
ISDA is the global trade association representing leading participants in the privately negotiated derivatives industry. ISDA was chartered in 1985, and today has more than 590 member institutions from 46 countries on six continents. These members include most of the world's major institutions that deal in privately negotiated derivatives, as well as many of the businesses, governmental entities and other end users that rely on over-the-counter derivatives to manage efficiently the financial market risks inherent in their core economic activities. Information about ISDA and its activities is available on its Web site.
About RMA
RMA—The Risk Management Association is a member-driven professional association whose sole purpose is to advance the use of sound risk principles in the financial services industry.
Founded in 1914, RMA promotes an enterprise-wide approach to risk management that focuses on credit risk, market risk, and operational risk. Headquartered in Philadelphia, RMA has about 3,000 institutional members that include banks of all sizes as well as nonbank institutions. They are represented in the Association by 16,000 commercial loan, credit, and risk management professionals in the 50 states, Puerto Rico, Canada, and numerous foreign cities, including Hong Kong, Singapore, and London.
About BBA
The British Bankers' Association (BBA) is the leading trade association in the banking and financial services industry representing banks and other financial services firms operating in the UK. It has 295 members, as well as many associate members, which fund its not-for-profit activities.
About PricewaterhouseCoopers
PricewaterhouseCoopers (www.pwc.com) is the world's largest professional services organization. Drawing on the knowledge and skills of more than 125,000 people in 142 countries, we build relationships by providing services based on quality and integrity.
PricewaterhouseCoopers refers to the network of member firms of PricewaterhouseCoopers International Limited, each of which is a separate and independent legal entity.