Architecting for Basel II: From Compliance to Excellence

by Michal Nowakiewicz, Jan Guryn, and Borys Stokalski with contributions from Michal Paluskiewicz and Wojtek Winnicki

The New Capital Accord (aka the New Accord or Basel II) is expected to cause profound changes in the financial services industry. To help plan for possible outcomes of this industry innovation program, the Basel Committee issued three consultative papers (proposed versions of the New Capital Accord) followed by three qualitative impact studies (QIS) before publishing the final document. The first study, QIS 1, took place in 2000 and focused on internal rating systems of banks of non-Group of 10 (G10) countries. The second study, QIS 2, was prepared in April 2001, with 138 banks from 25 countries participating. QIS 2 focused on the impact of the accord draft on capital requirements in the context of credit and operational risk. On the basis of QIS 2 results, the Basel Committee proposed a modification of the New Accord. The modification was analyzed in June 2002 during a "review" impact study with limited bank participation. The limited scope is what has caused this study to not be considered a "major version release" -- hence QIS 2.5. The last study, QIS 3, has been executed as a broad field test involving a wide scope of differentiated participants. QIS 3 is not an "ultimate study"; national field tests are being launched under the name of QIS 4, and the Basel Committee has already announced QIS 5. Nevertheless, QIS 3 represents the broadest field test performed across the financial industry, with readily available, reasonably current data, thus forming the soundest foundation for any analysis of the Basel II impact.