Reflecting all of the way back to the 2001 release of Basel II, and all of the related events which have transpired since, it would appear that the majority advantage would have to go to the banks which calmly sat back and watched the market. Delays at the hands of BIS and the Home Regulators made this a trying time for both the banks which had already begun to implement it and more so for the software vendors which were trying to sell their wares. Anyone who jumped in very early might be feeling some nagging regret, anyone who is just in the midst of implementing now should have a very good idea whether their solution will allow them to achieve their target date, and anyone still hanging back on making that crucial software decision should at least be narrowing the field. Unfortunately, many banks, and indeed entire countries have purposely delayed progressing a decision, and in the end this may be more detrimental than an early commitment. So why would banks choose to walk this dangerous line?

First and foremost, no-one would have missed the fact that the requirements have changed over time, and every time they change, anyone who has already implemented software may face the increasingly difficult task of accommodating these changes. Take the analogy of an automobile manufacturer which might inadvertently introduce a fault into one of its brake systems. Similarly to the Software Development Lifecycle, if the fault is recognised in the design phase, it may cost very little. If the defect is discovered as cars are being assembled, this will likely become a costly exercise, but it is still worlds better than a scenario which sees the defect being discovered after the first related accident, with 100,000 cars on the road.

Unfortunately for the banks, as analogies go, Automotive Engineering is very mature, after more than 100 years, and hundreds of millions of units produced. Basel software, on the other hand, has had but two iterations, and while banks offering top-dollar have even experienced difficulty in acquiring sufficient SME skills to cope with Basel, many software houses have been forced to perform their own Business Analysis, otherwise known as 'by the seat of their pants', making many ‘leaps-of-faith’ in their interpretations along the way. The unfortunate result this has created for the ‘first-wave’ of Basel II software is that it suffers from a multitude of defects and design deficiencies, compounded by the sweeping changes introduced since 2001. (exempli gratia: the Securitisation Framework, Counterparty Credit Risk in Annex 4, the Double Default Framework, and Credit Derivatives in the Trading Book) All of this has created a situation where vendors who were happy to accept the ‘quick-sales’ are now struggling as they sink deeper and deeper into damage control.

But…there may just be a solution on the horizon which will benefit the ‘late adopters’ as well as banks which take the decision to go back to the market; a solution from a company which patiently watched the market and adapted to changing requirements while its solution was still on the drawing board; which was only happy to offer its software to the market once requirements had been confirmed. The genius of its design was borne out of a 4 year, $600m Basel II implementation at one of the largest banks in the world, regulated in 7 jurisdictions. Anyone who has waited this long to select a Basel II partner will not be disappointed… Why not talk to us at RegCap?