Banks not so advanced after all

It would be at least three years before banks would see any change in the level of regulatory capital they must hold under the Basel 2 rules for bank capital, Bernie Egan, Basel 2 program director at the Australian Prudential Regulation Authority told an industry conference. Egan said much work needs to be done by major banks over the next year if they are to secure approval from APRA to apply the “advanced” model under APRA 2 which in theory would allow banks to hold less capital for regulatory purposes. Egan said Australian banks were among those that had argued that their internal models were superior to the “one-size-fits-all approach of Basel 1”, an argument that led to Basel 2. “To now claim development costs are excessive suggests that internal models were not nearly as well developed as was asserted,” he said.