SunGard Survey On Basel II Pillar II Indicates Lagging Implementation But High Expectations

Boston, MA - 26 October 2006

SunGard today announced the results of a recent survey on global banks’ systems readiness to comply with Basel II Pillar II requirements. Pillar II will require most banks to assess internal capital for a much wider range of risks than the credit, market and operational risks covered under Pillar I. While the SunGard survey found that most responding institutions are still in early planning stages, it also determined that many banks recognized the business benefits of measuring previously unrecognized risks and that they plan to use these measures for risk-adjusted decision-making across business lines. SunGard’s BancWare Capital Manager provides the ability to calculate overall capital adequacy, and factor the cost of risk capital into business line performance measurement and transaction pricing.

The SunGard survey, conducted during the third quarter of 2006, polled 61 banks from Europe, the Middle East, Africa, the Americas, the Asia-Pacific region including Japan to gauge their Pillar II aims and progress, especially with regard to the risk-and-capital systems that lie at the heart of Pillar II compliance.

The results reveal that 60% of participating banks have not yet selected the tools they will need to meet Pillar II requirements, likely because Pillar II is open to the detailed interpretation of local regulators around the world. Nearly 80% of banks say their Pillar II projects are still being defined, in the early planning stages, or underway. Only 16% of respondents claim their project is partially complete, and a mere 5% – all from Europe – have finished and fully integrated their Pillar II systems.

The survey results indicate that the key risks for which banks intend to allocate capital are led by business risk (51%) or the risk to revenues from competition. Market risk in the banking book (48%), and liquidity risk (41%), were close behind. Reputation and legal risk also showed strongly (30%), despite the difficulty of quantifying these risks.

Most participating banks plan to integrate their internal capital adequacy assessment processes into their business by using these new risk measurement numbers for capital planning (85%), business planning and forecasting (79%), risk mitigation (69%), and governance and control (61%). Nearly 60% also aim to apply the numbers to both pricing and performance measurement.

“It’s clear from our survey that banks are taking Pillar II compliance seriously, though many Pillar II projects are far from complete,” said Suhas Nayak, director, Basel II, for SunGard’s BancWare business unit. “Banks around the world are recognizing the benefits of including the new kinds of risk outlined in Pillar II in their internal capital adequacy calculations. Investing in Basel II technology, such as SunGard’s BancWare Capital Manager, that incorporates these risk measures into a holistic framework for capital adequacy and risk-adjusted decision making, will help banks apply enterprise-wide risk management beyond regulatory compliance to help favourably impact profitability.”

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