ROAD MAP OF IMPLEMENTATION BASEL II IN INDONESIA
- During parallel run, banks submit reports offline
- Updated calculation of market risk according to Basel II
- Banks may use this approach provided that they meet the prescribed requirements and have approval from BI
- Includes interest rate risk in the banking book, reputational risk, strategic risk, etc.
All the above deadlines are targets for completion
:: Pillar 1. Necessary Steps:
- National Discretion : (i) Supervisory authority must establish definitions, approaches and thresholds for implementation; (ii) Establish prudential standards and rules for compliance
- Quantitative Impact of Basel II : (i) Provide operational framework for banks; (ii) Measure potential impact on capital
- Assessment of Bank Practices and Readiness : (i) Assess readiness, gaps and implementation challenges; (ii) Hold bilateral dialogues
- Prepare Banks for Implementation : Encourage banks to make the necessary improvements for use of more sophisticated approache
- Development of Supervision/ Examination Guidelines : (i) Prepare qualification guidelines for advanced approaches; (ii) Prepare guidelines for examiners in evaluating bank compliance with standards
- Approval Process : (i) Communicate transition process for the approaches to be used; (ii) Facilitate progress in the implementation plan
- Exchange of information among supervisory authorities : (i) Facilitate crossborder supervision; (ii) Hold dialogues on challenges and obstacles in implementation
:: Pillar 2. Supervisory Issues, key issues for which adequate preparations are essential:
- Do banks already have a suitable internal capital adequacy assessment process (ICAAP)? How does one define a ‘sound’ framework?
- How should the supervisor implement the supervisory minimum standards when assessing the quality of a bank’s ICAAP?
- Are there standards for measuring ‘other material risks’?
- How do supervisors ensure the objectivity and transparency of the Pillar 2 process?
:: Pillar 3. The following are some necessary steps:
- Assess the gap between current and Basel II disclosure requirements
- Upgrade the supporting infrastructure for transparency
- Review overlaps between accounting and Basel II requirements
- Identify various preconditions necessary to ensure that improvement in scope and quality of disclosure will promote market discipline
- Formulate a method for assessing the effectiveness of Pillar 3