Ask virtually anyone who knows anything at all about finance and they will tell you that we are certainly living in a precarious age where international banking is concerned. Since the crash of 2008, more and more people and organizations are waking up to the financial realities that much of the developed world is currently facing. Perhaps this is why more and more institutions are implementing various types of tools which are designed to hedge against certain risks which reside in the markets (and perhaps even within the over-arching strategies of some organizations as well).
Basel II was created in 2004 and according to Wikipedia, it…
“…was intended to create an international standard for banking regulators to control how much capital banks need to put aside to guard against the types of financial and operational risks banks (and the whole economy) face.”
In other words, Basel II basically was a regulation program designed to ensure that banks (particularly international ones) take the necessary precautions needed to protect themselves against various types of problems. Among these concerns are: being able to ensure segregated customer funds, preventing individuals or groups from placing the entire operation at risk by making extremely risky investment decisions, and many others. Needless to say, it is these types of regulations which prevent those on the inside of the banking establishment from carrying out activities which might place the entire banking establishment (as well as most of the world’s population) in dire financial straits.
Supporters of the Basel II initiative typically see it as a means of creating a safeguard designed to prevent a “domino collapse” of all interconnected banks. In other words, should some substantial banks encounter major problems, or even collapse, it is hoped that through the implementation of Basel II initiatives a complete, systemic collapse of the entire system might be avoided. How would it seek to achieve this, you ask? The general rule of thumb is, the more risk that’s assumed, the larger the capital requirements are. What Basel II is really trying to prevent is a scenario whereupon multiple banks simultaneously become insolvent.
You might be wondering, “What does this have to do with IT?” Well, for starters, banks and financial institutions often employ extensive IT operations, which is reason enough for IT workers to take notice. However, even some companies which are not directly affiliated with the banking business might be interested in exploring some of the various Basel II tools which are available. For instance, if a great deal of strategic planning is taking place within a business and investment issues are a major point of focus, it might be considered worthwhile for companies to adopt a Basel II-like approach to their long-term plans. Additionally, if a business has direct dealings with a bank, it would also be considered prudent for them to perhaps monitor the actions and data of this financial institution, making sure that they are adhering to Basel II initiatives and so forth.
Once again, given that significant investments often go hand in hand with long-term strategies, it only makes sense for companies to conduct their own research with regards to the solvency of their investors and participating firms. For example, if a major corporation where to partner with a major bank and it turns out that that particular financial institution wasn’t in compliance with any regulations at all, it could very easily place the entire company in serious jeopardy. Often times (as history will demonstrate), major financial institutions which are about to collapse tend to use salacious methods to hide their insolvency, showing little regard for the negative outcomes of their dubious actions.
For those IT professionals with a keen interest in finance or positions with companies that operate in and around the banking establishment, a certification in Basel II is a solid investment. Moreover, the costs associated with pursuing certification in an area like Basel II are relatively minimal; however, the rewards associated with truly understanding the accords and operational objectives of something like Basel II are countless.