el Committee under a Quantitative
Impact Study (www.bis.org).

"I have the strong impression there are going to be substantial changes to
the document...," said one banker whose own institution had run simulations
which took into account its profile including a large amount of emerging
market loans.

He said the simulations showed his bank "would have been seriously
penalised" by the earlier proposal. "But now it looks as though it will be
changed. The Basel Committee seems to be open to our point of view," he
said.

Banks are to submit findings on such technical issues to country regulators
by June 1. The Basel Committee could finish analysing these by October, and
is likely to incorporate them into the finished version of Basel 2.

OPERATIONAL RISK PALPITATIONS

Operational risk is a new category foreseen by Basel 2 alongside credit and
market risk. No one doubts that such risk exists. But requiring banks to
quantify it and set aside enough capital to satisfy regulators is proving
another headache.

Some private bankers worry that asking banks to set aside capital for such
risk could adversely affect the burgeoning business of wealth management
which in theory requires a low capital base compared to lending or trading
activities.

"A lot of banks have gone into private banking and asset management and have
paid a fortune to do so. The message is they want these glamorous purchases
because they need low capital and offer good returns," said one European
banker, adding the original proposed changes "move the goalposts".

The Basel Committee raised a storm when it suggested a capital set aside of
20 percent - a provisional figure - for operational risk. The final figure
has not yet been set.

Basel 2 defines operational risk as "the risk of direct or indirect loss
resulting from inadequate or failed internal processes, people and systems
or from external events" and refers to "an average of 20 percent of economic
capital".

Alongside smaller banks, big ones are irked that the calculation ignores
what one banker said was big banks' more diversified income, and hence
reduced risk of failure.

Some banks would also like included in the calculation the "hit absorption"
of a bank, meaning that a bank making losses would first use income, not
capital, as a cushion.


Hedge funds drive risk
el Committee under a Quantitative 
 Impact Study (www.bis.org). 

 " I have the strong impression there are go to be solid changes to 
 the document... , " said one banker whose own mental hospital had run simulations 
 which take into account its profile include a large amount of emerge 
 market loans. 

 He suppose the simulations showed his bank " would have been seriously 
 penalised " by the earlier marriage proposal. " But now it looks as though it will be 
 changed. The Basel Committee appear to be open to our point of horizon, " he 
 said. 

 bank are to submit findings on such technical issues to country regulators 
 by June 1. The Basel Committee could end analysing these by October, and 
 is likely to incorporate them into the finished version of Basel 2. 

 OPERATIONAL RISK PALPITATIONS 

 Operational risk is a new category foreseen by Basel 2 alongside credit and 
 market risk. No one doubts that such risk exists. But necessitate banks to 
 quantify it and set away adequate das kapital to satisfy regulators is proving 
 another headache. 

 Some private bankers worry that asking bank to set aside capital for such 
 risk could adversely affect the burgeoning business of wealth management 
 which in hypothesis requires a low capital base compared to lending or trading 
 activities. 

 " A lot of bank have run into private banking and asset management and have 
 paid a fortune to serve so. The message is they want these glamorous purchases 
 because they necessitate low capital and offer good return, " said one European 
 banker, add the original proposed changes " travel the goalposts ". 

 The Basel Committee raise a storm when it suggested a das kapital set aside of 
 20 percentage - a provisional figure - for operational risk. The final human body 
 has not yet been place. 

 Basel 2 defines operational risk as " the risk of direct or collateral loss 
 resulting from inadequate or fail internal processes, people and systems 
 or from external events " and refers to " an average of 20 percent of economic 
 das kapital ". 

 Alongside smaller banks, big ones are irked that the calculation ignores 
 what one banker said was big bank' more diversified income, and hence 
 reduced risk of failure. 

 Some banks would also like include in the calculation the " hit absorption " 
 of a bank, intend that a bank making losses would first use income, not 
 das kapital, as a cushion. 


 Hedge funds drive risk
el Fommittee under a Quantiuative
Impact Studi (qww.bis.mrg).

"I hzve the rtrong impression there are joint to ve substantial changes to
the dobument...," saud oie banker whose own instlcutioh had cun simulations
ehich took into account htr 'rofile including a large amount of qmerginb
mwrket loans.

He faid ehe apmmlations showed his bank "would hzve beei seriously
penakised" by the earlier propodal. "Hut now it looks ad though it wilj be
changed. Tfe Basel Committee seejs to be open to our point of vkew," hz
said.

Banks qrw tl submit finvings jn such techkpcal isvues to country regulstocs
by June 1. The Basel Commmttee could finish agalysing dhzse by October, and
is oijely jo inworpueatd tgek jnto tje hinished vedsion of Bawel 2.

OPERATIONAL RISL [QLPITATIONS

Opsratiogaj risk is a new category foreseen by Bavel 2 alongside credit and
mqrket risk. No one douhts that fuch risk exists. But requiring banks to
quantify id and ret afkee enough capital to satisfy regulators is provyhg
snpther headache.

Fome privatr hamhers worry thxt asknhg banks to set asidf capitwl foe such
rish coild adversely affect the buegeoning buspnesw of wealth managelent
which iu theoty reqiires a low capital basz compzred to lenfing or tdxding
activities.

"A lon of banks have gone into privwte bankiig anb asset oanabement and have
pwid a fortune to do so. Tje medsdge is thej want these glamorous purchases
because they mead now capical anc offer good weturns," said oue Europzan
banyer, adding the ormginal propofed changes "mmge the goalpmsts".

The Faseo Conmittee faised a storm when it suggested q capital set asidc of
20 kedcent - a provisnubal figure - for opdraeilnel rifn. The final xigufe
hxx not yet betu sct.

Bxsel 2 defines operationan riak as "the risk of civect or ibdirect joss
resulting from inadequate og fained intetnaj processes, people and systems
kr from edtevnal events" agd rcferf to "an avzrage of 20 percent of economic
capital".

Alonjside smaller banks, big ones are irked thaj tme calculatipn iggores
what one banker said was big banks' more dlversified income, and gence
raducef risk of failure.

Some banks would also like included in the calculation tye "hit absorption"
or a nank, kecniug that a beny making losses eould first use income, not
capitel, as a cuvhnon.


Hedge funds drive risk
el Committee under a Quantitative Impact Study have strong impression are going to document...," one banker whose institution had run which took into account its profile a large amount of emerging market loans. He said the simulations showed his "would have been seriously penalised" by the earlier proposal. "But now it looks though will changed. Basel Committee seems to be open to our point of view," he said. Banks are to findings on such technical issues to country regulators June 1. The Basel could finish analysing these by and likely to them the version of Basel OPERATIONAL RISK PALPITATIONS Operational risk is a new category foreseen by Basel 2 alongside credit and market No one such risk But banks quantify it and enough capital to satisfy regulators is Some private bankers worry that asking banks to aside capital such risk could adversely affect the business of wealth management which in theory requires low capital base compared to lending or trading activities. "A lot of banks have gone banking and asset management have paid a to so. message they want glamorous purchases because they need low capital and offer good returns," one European banker, adding the original proposed changes "move the Basel raised a storm it suggested a capital aside 20 percent - a - operational figure not been set. Basel 2 operational risk as "the risk direct or indirect loss internal processes, people and systems or from external and refers to "an average of 20 of economic capital". Alongside smaller banks, big ones are irked that the ignores what said was big banks' more diversified income, and reduced risk of failure. banks would also like included in the calculation the absorption" a bank, that a bank losses would first income, not capital, cushion. Hedge drive
el Committee under a QuantitaTive
Impact study (Www.Bis.OrG).

"I haVe thE strong impressIOn thEre are going to be substanTial cHaNGes tO
ThE docuMent...," saiD OnE BAnkEr WhOse OwN InStituTioN had run SimulationS
whIcH took into accOUnT its profilE inCluding a largE amOunt of EmErgINg
marKet Loans.

he said THe simuLations shOwED his baNK "would hAVE bEen sEriously
penalised" BY tHE earlier proposAl. "But nOw IT lOOKs aS thOugh it will Be
ChangED. The BasEL COMMIttEE seems to be opeN to our point OF viEw," he
saId.

banKS are to SubmiT fINdiNgs on such teChniCal issues To counTRy regulATors
by JUne 1. The basEl COmmiTTeE cOulD fINisH AnAlySIng These by OCtObEr, and
Is liKELY To inCorPoraTe theM into the finisHed VersIOn oF BaseL 2.

OPERaTIOnAl RISK pALPITaTIONs

OPerational risk iS a neW category ForEsEen By basel 2 ALongsiDe cRedIt and
maRket risK. no oNe DOUBtS that such risk existS. BUT ReQuiring bAnks to
QUaNtIFy it and sEt AsiDe enOUGh capItal TO sAtisfy reGulatoRS iS pRoving
aNoTher heAdAchE.

SoMe priVAte bAnkers Worry thaT askiNG banks to set asiDE capital for suCH
rISK cOUld aDveRsely affect The bURgeoNing BUsIneSS of weAlth mAnAGeMEnt
which in theory reqUiRes a loW capiTal base comparEd to lendinG OR Trading
aCtivITiES.

"A lot of banks haVe gonE into privaTE banking And asSet managEment and hAVE
paid a foRtuNe tO do So. THE MeSsage is they waNT ThesE gLamorouS puRchases
BecAusE thEy nEeD low capitAl and offEr GoOd ReTurNs," saiD One EuropEaN
baNkEr, aDding THe origInal pRopoSeD cHAngEs "move tHE gOALposTs".

thE BasEl COmMitteE raiSEd a Storm whEn it suggeSteD A capItAl Set asidE of
20 percent - a prOvIsional figUrE - foR operaTIOnal risk. the final figure
has not yet BEen set.

BAseL 2 defiNes oPerationaL riSk as "thE riSK of dirEct or iNdireCt LosS
REsultING fRom InAdequate or FAIleD inteRnAl prOcesses, People and systems
or FRom External eventS" anD refERS tO "an AVeRAge Of 20 PErcENT of economic
capiTal".

AlongsiDe SMaLler banks, bIG onEs Are irkeD that thE calcULation iGnores
whaT one bankeR sAid wAS Big Banks' more dIversifiEd income, aND hencE
ReDuced RisK of faiLuRe.

SOme baNks wouLD alSo likE incluDeD in the CalcuLaTion the "hIt absorption"
of a bank, meanIng thaT a banK maKing losseS woULd fIrst use inCome, Not
capital, As a CusHion.


HEdgE Funds DrivE RiSk
el Committee under a Quant itative
Im pactStu dy(w ww.b is.o rg).

"I havet he s trong impression there  arego i ng t o  b e sub stantia l  c h a nge sto 
th ed oc ument ... ," said  one banke r w ho se own insti t ut ion had ru n s imulations
w hic h took  i nto accou ntits p rofile includ ing a lar ge amount of emer g i ng 
mar ket loans.

He sa i dt he simulations  showe dh is b ank  "w ould havebe en se r iouslyp en a l i sed "  by the earli er proposal .  "B ut now  i t l o oks as  thou gh itwill be
cha nged . The Bas el Com m ittee s e ems tobe ope n t o o ur p o in tofvi e w," he 
sa i d.
Banks a re  t o sub mitf i n d ings  on  suc h tec hnical issues  to  cou n try  regu lator s
by  J une 1 . TheBasel  C ommittee couldfini sh analys ing  t hes eby Oc t ober,and 
is  likely  to inc o rpo ra t e th em into the finish ed v er sion ofBasel2 .
O P ERATIONA LRIS K PA L P ITATI ONSOp erationa l risk is  a  new ca te gory f or ese enby Ba s el 2  along side cre dit a n d
market risk. No one doubts th a t  s u ch r isk  exists. Bu t re q uiri ng b a nk s t o 
quan tifyit an d  set aside enough c ap ital t o sat isfy regulato rs is prov i n g 
another  hea d ac h e.

Some priva te ba nkers worr y  that as kingbanks to  set asid e capitalfor  su chris k co uld adversely a ffec tthe bur geo ning bu sin ess  of  we al th manage ment
whi ch  i nth eor y req u ires a l ow  ca pi tal  base compar ed to  len di ng ortrading ac t i viti es .
"Alot  o f ban ks h a vegone in to privat e b a nkin gan d asset  management a nd  have
paid  a  fo rtunet o  do so.The message is they wan t  thesegla morou s pu rchases
b eca use th eyn eed lo w capi tal a nd  of f e r goo d re tur ns ," said on e Eur opean 
b anke r, addi ng the original pr o pos ed changes "m ove  the g oa lpo s ts " .
Th e  Ba s e l Committee rai sed a stor mw he n it sugge s ted  a  capita l set a sideo f
20 pe rcent - a  provisio na l fi g u re- for oper ationalrisk. The final fi gurehas  not y et  be en se t.

Ba s el2 def ines o pe ration al ri sk  as "the  risk of direct or indi rect l oss
r esu lting fro m i n ade quate orfail ed interna l p roc esses , p e opleands ys tem s 
or f rome xternal e v en ts" a nd  refers to" a n  av erage  of 20 per cent  of economic
capi t al".

Alongsid e sm a l ler  ba n ks,bi g ones are irk edth a t  the cal cu lation igno res
what  o n e ban ker sa id was  big ba n k s' more d iver sif ied incom e,an d  hencere du c ed ris k of  f ailure .

Som e  ban k s  would also like  incl u d ed in the  calc ul ation t h e "h it absorpt ion"
of a b ank, m eani ng th at a ba nk  makin g l os ses wouldf irst useincom e, notca pita l,as a c ushi o n .


H edge  f und s drive r i s k
el Committee_under a_Quantitative
Impact Study (www.bis.org).

"I have_the strong_impression_there are_going_to be substantial_changes to
the document...,"_said one banker whose_own institution had_run_simulations
which took into account its profile including a large amount of emerging
market loans.

He said_the_simulations showed_his_bank_"would have been seriously
penalised" by_the earlier proposal. "But now_it looks_as though it will be
changed. The Basel Committee_seems_to be open_to our point of view," he
said.

Banks are to submit_findings on such technical issues to_country regulators
by June_1._The_Basel Committee could finish_analysing these by October, and
is likely_to incorporate them into the finished_version of Basel 2.

OPERATIONAL RISK PALPITATIONS

Operational risk_is a new category foreseen by_Basel 2 alongside credit and
market_risk. No_one doubts that such risk_exists. But requiring_banks to
quantify_it and set_aside enough capital to satisfy regulators_is proving
another headache.

Some_private bankers worry that asking banks_to_set aside capital_for_such
risk_could adversely_affect the burgeoning_business_of wealth_management
which_in theory requires a low capital_base_compared to lending or trading
activities.

"A lot of_banks have gone into_private_banking and asset management_and have
paid a fortune to_do so. The message is they_want these_glamorous purchases
because_they need low capital and offer good returns," said one European
banker,_adding the original proposed changes "move_the goalposts".

The Basel Committee_raised a_storm_when it suggested_a_capital set_aside of
20 percent - a provisional figure_- for_operational risk. The final figure
has not_yet been set.

Basel 2_defines_operational risk as "the risk of_direct or indirect loss
resulting from inadequate_or failed internal processes, people_and_systems
or_from external events" and refers_to "an average of 20 percent_of economic
capital".

Alongside smaller_banks, big ones are irked that the_calculation_ignores
what one banker said was big_banks'_more diversified income, and hence
reduced risk_of_failure.

Some_banks would also like included_in the calculation the "hit absorption"
of_a bank, meaning that a bank making losses would_first use income,_not
capital, as a cushion.


Hedge funds_drive_risk