Practical aspects of implementing a Basel II‐compliant economic capital framework
| Published date | 01 September 2002 |
| Pages | 219-223 |
| Date | 01 September 2002 |
| DOI | https://doi.org/10.1108/13581980210810210 |
| Author | Bert Bruggink,Eugen Buck |
| Subject Matter | Accounting & finance |
Case study: Practical aspects of
implementing a Basel II-compliant
economic capital framework
Bert Bruggink and Eugen Buck
Received: 22nd April, 2002
Rabobank Nederland, Croeselaan 18, 3521 CB Utrecht, the Netherlands;
tel: +31 30 216 2615; e-mail: A.Bruggink@rn.rabobank.nl
Professor Dr Bert Bruggink teaches
finance and economics at the University of
Twente, the Netherlands, and is Group
Finance Director of the Rabobank Group.
Eugen Buck is a Managing Director of
Rabobank Nederland. As a senior project
manager he is responsible for the imple-
mentation of economic capital in the Rabo-
bank organisation.
ABSTRACT
In this case study the authors outline how a
major financial institution in the Netherlands
deals with the practical aspects of implementing
a Basel II-compliant economic capital frame-
work. The paper gives an overview of the pro-
gramme Rabobank has set on track for the
implementation and discusses the prioritisation
of project streams and how to track progress of
the programme. An important aspect of the
whole programme is communication between all
the parties involved. Finally, the paper con-
cludes with a discussion of the major challenges
faced during the implementation process.
BACKGROUND
Many banks around the world are assessing
the potential implications of the new Basel
capital adequacy framework (Basel II).
Compliance with these new regulations —
once translated into national legislation —
is a sine qua non for the banking industry.
To that end, each bank will have to make
a choice from the Basel II menu for credit
and operational risk capital requirements
— following either the less sophisticated
basic or standard approaches or going for
the more advanced approaches based on
internal risk models. It should also be
borne in mind that through a more oner-
ous and detailed supervisory review (Pillar
II) the new Basel II framework requires
banks to improve their risk management
framework and measure all risks in a con-
sistent and comprehensive way. In anticipa-
tion of the expected changes more banks
are now also seeking to introduce eco-
nomic capital frameworks, to implement
risk-adjusted return on capital (RAROC)
and to reap the benefits of risk-based busi-
ness applications and streamlined credit
processes. Against this background, Rabo-
bank, one of the leading financial institu-
tions in the Netherlands, has chosen to
implement a Basel Il-compliant economic
capital framework and introduce risk-based
business applications in the Rabobank
organisation.
INTRODUCTION
For Rabobank it is very important that the
introduction of economic capital, value-
based management and the management of
Journal of Financial Regulation and Compliance Volume 10 Number 3
Page 219
Journal of Financial Regulation
and Compliance, Vol. 10, No. 3,
2002, pp. 219–223
#Henry Stewart Publications,
1358–1988
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