The research firm advises clients to embed Basel II changes into core business-improvement strategies, tying investments to improved capital efficiency and reduced operational losses. Among Forrester's recommendations: Make governance dynamic, use enterprise visibility to manage data complexity, design Basel II systems with business users in mind, and partner in industry groups to overcome operational-risk hurdles.
Basel II's greatest challenge lies in identifying data needed to populate risk models, Forrester says. Basel II leaders need to prioritize cross-functional domains that justify data synchronization.
Accurately measuring operational-risk factors, like employee fraud and systems failure, will pose a huge challenge to the majority of financial firms that have never systematically tracked these loss drivers, notes Forrester. Banks should follow the lead of their Swiss counterparts and participate in industry groups like ORX Association, which pools and analyzes operational-risk data from member banks.
"Tier-one universal banks like Credit Suisse that have practiced risk-based pricing for years stand to gain the least from Basel II," according to Forrester research director Remus Brett. "In contrast, successful implementation of advanced [risk] techniques will allow large retail banks like Lloyds TSB to reduce minimum capital requirements by a significant degree."