Securities Industry Association Warns Over Likely Impact Of Basel II

by Robin Pilgrim, LawAndTax-News.com, London

12 August 2003

The Securities Industry Association (SIA) has warned that proposals on capital requirements for banks contained within the planned new international regulatory regime, known informally as Basel II, may adversely impact on investment banks, making certain business lines significantly less attractive.

The SIA, which represents some 600 of the world's largest securities firms, warned that anticipated increases in the amount of capital that they are required to hold may mean that over-the-counter derivatives and stock lending, which currently represent a large part of investment bank business, become more costly, and consequently less attractive.

In a recent submission to the committee tasked with drawing up the new capital requirement rules, Michael Alix, chairman of the SIA's risk management committee, announced that they represent 'a step forward for commercial banks but we view them as a step back for investment banks'. He went on to add that:

'Our analysis, which is continuing, indicates that for many of our core activities, Basel II prescribes capital requirements that appear to be excessive relative to risk and loss experience.'

According to a Financial Times report, the British Bankers' Association and the London Investment Banking Association have also condemned the Basel II proposals, which seek to align the amount of capital that an financial institution must hold more closely with the amount of risk entailed by the services and products that they offer.

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