There are conflicting schools of thought on how banks should best incorporate the Basel Committee on Banking Supervision (BCBS) “Principles for effective risk data aggregation and risk reporting”, also known as BCBS 239.
In the blue corner: extensive investment in new, dedicated risk systems and data architecture. And in the red: the less expensive adaptation of current accounting systems. Costs are clearly a concern and an accounting-based approach may seem to make economic sense, in the short-term at least. But is “risk accounting” also missing the point of BCBS 239 – not to mention key differences between risk management and financial reporting?
This new paper assesses both approaches and explores both the logic and flaws of the ‘risk accounting’ ideology.
Download the new paper here.