As banks throughout Europe have disbanded their Basel II programmes and now calculate their regulatory capital requirements on a basis more reflective of the risks they run, top management teams may well be forgiven for thinking that this hugely expensive exercise is all over and that they can move on to spend their money on other things, which in their view will add more value to the business.

Many of them may have to think again! The turbulence in the financial markets during 2007/2008 has, on the contrary, generated even more regulatory scrutiny and an ever increasing focus on risk, capital and liquidity management. This has led some to question whether the Basel II approach is relevant or effective. This, however, misses the point. Basel II represents a complex but useful tool. While its features may be refined over time, the real question revolves around just how adept banks are at using it, and embracing the real spirit of managing the business better in a world where the risks themselves have become ever more complex.

Author: Simon Baker, Deputy Head of Consultancy