TOWERGROUP: ADVANCED RISK MANAGEMENT APPROACHES TO IMPLEMENTING BASEL II ARE TAKING HOLD

Needham, MA, February 22, 2006 - As banks are now partnering with regulators to execute the Basel II framework by 2008 and improve risk dynamics across international markets, they find themselves challenged by the complexities of implementing integrated technology solutions. These challenges have pushed many large banks to develop sophisticated new systems to manage credit and market risk, as well as to venture further into the emerging field of operational risk management - giving rise to a new risk management ecosystem. TowerGroup estimates that third-party specialized solutions currently represent 60% of the total spending in risk management technologies to a total of $12 billion (USD) globally for 2005.

Taken in isolation, the technological complexity and accompanying investments demanded by Basel II have prompted some banks to voice concerns regarding the cost to comply with this and other regulatory mandates. Yet TowerGroup argues that from an expense perspective, the problem lies in the fact that many banks have adopted a tactical, ad hoc approach to regulatory compliance. The result has been a fragmented, complex, and expensive array of control processes that may crack under public and government scrutiny. Structural problems worsen over time, so indifference and paralysis could beget disaster.

A new TowerGroup report titled, "Basel II: Advanced Risk Management Approaches and IT Solutions Are Taking Hold," by Guillermo Kopp, vice president of Cross-Industry research at TowerGroup, discusses the headway regulators, institutions, and technology vendors are making to implement the capital adequacy approaches that stem from the Basel II framework. Beyond compliance objectives, there are compelling business reasons for banks to adopt advanced risk management systems proactively. TowerGroup believes financial services institutions that embrace the advanced risk management methods emerging out of the push to implement Basel II will benefit from lower capital requirements and reap additional business gains in competitive differentiation.

This report is available to qualified members of the press for review. To request a copy or to arrange an interview with Mr. Kopp, please contact Anne Green at +1.212.455.8017 or agreen@cooperkatz.com.

At TowerGroup, Mr. Kopp covers a wide range of issues including business and technology transformation, business process outsourcing, regulatory compliance, and corporate governance.

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