The Basel II Framework

 The Australian Prudential Regulation Authority (APRA) has
announced that it will implement the Basel II Framework from year-end 2007.

Authorised deposit-taking institutions (ADIs) will be required to meet the capital requirements of the Framework from 1 January 2008 and their prudential reporting for the quarter ended 31 March 2008
will be based on the requirements of the Framework.

The Basel II Framework, developed by the Basel Committee on Banking Supervision (Basel Committee) is a new global supervisory framework for assessing the minimum capital adequacy of deposit-taking institutions.
It contains guiding principles for ADI’s to assess their capital adequacy and to adjust them to reflect any other risks not taken into account originally.

ADI’s will be required to publicly disclose information on their capital, risk exposures and risk assessment.

Implementation will require upgrading of ADI internal systems for measuring risks and managing default data.
It will also require a decision on which credit risk approach to adopt. Different approaches will result in different capital adequacy requirements (ie low risk lending will have a lower capital requirement).

The new framework will also affect the securitisation industry.

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