The Basel Committee is implementing designs for a New Basel Capital Accord to replace the Accord originally established in 1988. The Basel Accord is a regulatory framework that helps govern the risk in banking, risk management and financial services and is being updated to reflect changes in the global financial services industry.
The new Accord will be fully implemented in 2004 and will force banks to optimise and streamline their credit risk portfolios. It will allow banks to exchange or transfer credit from bank to bank, enabling it to shape their portfolios.
Oracle has developed an architecture that enables financial services to meet the `three pillars` that make up the Accord. The Oracle solution enables collation of many years worth of detailed, granular data, enables a complete approach to minimising operational risk, provides a consistent view of relationships across all business units and regions and can drill down between all statutory, regulatory, internal and external web based reporting.
Compliance with the Basel Accord puts banks in line for higher IT costs, especially those that have taken a "best of breed" approach to their software purchases. "Banks will find their IT bill for integrating these systems will skyrocket, and the end result may not be entirely satisfactory," says Oracle marketing director Marc Gower. "A DataMonitor survey in October 2001 pegged bank IT costs as high as 30% of total operating costs, a percentage that could go even higher when banks integrate their systems to achieve compliance."
Oracle`s philosophy of a complete software suite eliminates the high cost of enterprise system integration and the many months it would take to achieve full systems integration. Once banks have integrated their systems, however, they will have solved another major problem - effective customer relationship management.
According to PricewaterhouseCoopers, the top 10% of households in Europe make 75% of the profit - the top 20% of households make 98% of the profit. Approximately 47% of households are unprofitable. "It is key for banks identify and understand their profitable customers, to accurately segment their customer base, to offer customers the right products and to measure the effectiveness of marketing campaigns," says Gower.
"Banks face enormous challenges because they are unable to get a single view of their customers. The Basel Accord may at first be regarded as an expensive IT headache, but banks may find that their compliant systems will make it a lot easier to profile their customers, and target their energies on their profitable customers."
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