Basel II is losing its allure for banks as they realise the huge costs involved in compliance. The finding is from a survey by consultancy Accenture.

The banks will have to comply with the new accord, from 2007. The new regime will force them to meet capital adequacy requirements based on their individual risk profiles.

Accenture found the banks to be less convinced of the benefits than they were two years ago.

63 banks took part in the survey, across Europe and North America.

The American banks were the least convinced.

The regulators and those involved in banking supervision believe that the financial system will be made stronger with the introduction of the accord. Risk management will also improve.

The need to make complex measurements of risk, has meant very heavy investment in staff and IT.

UK banks can expect to spend at least £2.5bn according to Accenture. This is based on the 20 participating UK banks spending £750m. ($1.3bn).

Larger banks are likely to follow the advanced internal ratings based approach (AIRB). Sophisticated models of historical defaults are held. Those that do so, are facing higher costs, but Basel II then allows them to keep lower levels of regulatory capital.

However the majority, 80% of the banks said they expected their capital positions to improve only slightly in Basel II world.

European banks were still positive about Basel II. 60% felt that it would lead to improved capital allocation.

Related Articles
Citigroup and Reveleus
Basel II Glossary
Lloyds TSB and Reveleus for Basel II
Internal Control and Invoicing
Internal Control Documentation Tools
Market Risk