Task List

Task List to Implement Recommendations of Basel II Task Force

Recommandation

Final Target completi on date

Tasks

Estimate d Timing

#1 Bank of Algeria should ensure that risk-based supervision is fully implemented before adoption of any part of Basel II is considered.

September 30, 2009

Basel Core Principles assessment:

1. 2. 3. 4. 5.

Perform and document a rigorous, independent and detailed Basel Core Principles assessment.; Identify which individuals will carry out the assessment, and provide them with adequate time and resources to complete; Identify whether additional donor and/or technical assistance is required; Establish protocol for documenting compliance with Core Principles on an on-going basis; this may involve a policy for periodic review; Use assessment results to identify gaps in current supervisory practices and routines, and develop an action plan to bring these up to risk-based standards where indicated.

Bank rating systems establishment, training and communication with banks: 1. 2. 3. 4.

Develop a methodology for rating and rank-ordering risk in banks, as well as a composite rating for the institution. Identification of individuals responsible for this; management to provide them with sufficient authority to complete assignment (including research of rating system design and practice in other jurisdictions). Training of supervisory staff in application of the rating system, and documentation of implementation through written procedures. Communication of rating methodology and associated procedures to bankers and other interested parties (e.g., other Bank of Algeria departments, financial media, other financial system regulators, etc).

Risk based supervision : •

Review other areas necessary to support implementation of risk-based supervision, e.g., corporate governance, and bring these up to international standards (detailed in Basel Committee and OECD guidance).

1

Staffing requirement •

Any proposed adoption of Basel II, as well as any preparations, should focus on all three pillars in equal measure. (NB: tasks associated with implementation of Pillar 2 are captured under Recommendation #5)

December 31,2009

#2

Identify individual(s) responsible for completion of this recommendation, and provide them with sufficient authority and resources (e.g., internet access) to complete as indicated.

Pillars 2 and 3, review and strategy: 1. Review implementation of Pillars 2 and 3 in other countries, with particular emphasis on those with similar characteristics (e.g., emerging/transitional markets, presence of foreign bank subsidiaries and PSEs, etc.). Reference may include:  Basel II Implementation Group and relevant work streams  Contact with other supervisors  Industry and/or trade associations 2. Use this knowledge to propose an initial adoption strategy and develop rules of engagement with Algerian banks that are likely to be subject to Basel II.

Market discipline and industry comment : 1. 2.

Identify the current level of market discipline in the Algerian context, and establish supervisory expectations through discussion with relevant parties (bankers, other regulators, investment community, etc). Propose an initial set of disclosures for industry comment and refine as appropriate.

Home supervisor dialog

•

Start a dialogue with home country supervisors of the foreign banks, discuss their needs vis a vis their banks’ Algerian operations, and establish communication protocols and appropriate legal arrangements

(e.g., MOUs, information sharing protocols,

etc).

Staffing requirement: •

Identify the individual(s) with responsibility for completion of this recommendation, and provide them with sufficient authority and resources to complete as indicated.

Communication with Banks: •

Bank of Algeria supervisory staff should initiate on-going discussions with banks to ascertain their level of preparedness to adopt Basel II, and use this information to steer implementation efforts.

March 31, 2010

#3

Determine a protocol for communication with banks:  With whom will communication take place?  What areas of mutual interest will be discussed?  In what format will discussions occur?  How will discussions be documented?  How will this be communicated to Bank of Algeria supervisory management?

Banks IT systems: •

Identify capabilities of various banks’ IT systems to capture and report information that would be necessary under likely Basel II approaches (Standardized – credit; Standardized – market; Basic Indicator – operational; plus Pillar 2 requirements and Pillar 3 disclosures)

Risk management and measurement practices: 1. 2.

Establish and document a baseline of risk management and measurement practices across the banking system to determine effectiveness of subsequent implementation efforts. Compare risk measurement and management capabilities across the system, e.g., at subsidiaries of foreign banks vs. those that are state-owned.

Basel II strategy: •

Use this information to propose a Basel II implementation strategy for consideration of supervisory management.

2

Staffing requirement:

#4

(NB: This recommendation has significant task dependencies, and therefore cannot begin until certain other tasks are underway or have been completed, as noted below. Task Force members would be in the best position to drive such scheduling.)

• •

March 31, 2012

An impact study should be performed prior to adopting Basel II in order to assess whether the probable impact on capital levels is appropriate.

•

Identify the individual(s) with responsibility for completion of this recommendation, and provide them with sufficient authority and resources to complete as indicated. Research QIS methodologies and results in other jurisdictions that have implemented Basel II, and discuss with these foreign supervisors as appropriate (requires internet access). Use information on risk management and measurement capabilities gained through implementing Recommendations #1, 3, 5 and 6 to design reporting forms to capture regulatory capital in a hypothetical Basel II environment.

Reporting : • •

Analyze results for quality, accuracy, consistency and systemic impact. Report results to Bank of Algeria supervisory management and make recommendations regarding scope of Basel II implementation.

Staffing requirement: •

Survey and compare existing practice:

December 31, 2009

#5 An internal capital adequacy assessment process (ICAAP) should be adopted as a precursor to adoption of Pillar 2 of Basel II.

Identify the individual(s) with responsibility for completion of this recommendation, and provide them with sufficient authority and resources to complete as indicated.

• •

Survey existing risk measurement and capital planning practices in Algerian banks, and document in order to determine effectiveness of subsequent implementation efforts. Compare existing practice to international best practice; research risk management literature and discuss practice elsewhere with supervisors in other jurisdictions as appropriate.

Propose industry guidance and publish after comments period: • •

Propose draft guidance to the industry, and seek comments. Incorporate these comments into final guidance and publish.

Internal procedure and training : •

Inform and/or train other Bank of Algeria departments on expectations contained in the guidance, and make changes to inspection and other routines as appropriate.

3

Staffing requirement: Tasks necessary to complete implementation: •

#6

(NB: This recommendation has a significant task dependency with Recommendation #5 since risk measurement is a major element of capital planning, hence, most of the same tasks above are equally applicable here).

Compare existing practice to international best practice : 1.

December 31, 2009

Risk measurement systems and management processes should be enhanced in all banks that would be subject to Basel II.

Identify the individual(s) with responsibility for completion of this recommendation, and provide them with sufficient authority and resources to complete as indicated.

2.

Compare existing practice to international best practice; research risk management literature and discuss practice elsewhere with supervisors in other jurisdictions as appropriate. Identify significant gaps in Algerian practice, and discuss with bank management and other relevant parties (e.g., internal and external auditors) to determine how best to make improvements

Develop an action and discuss with banks: •

Develop an action plan and discuss with banks; this may require Bank of Algeria intervention in the form of guidance (preferred), further regulation, or legislative changes.

Staffing requirement:

Bank of Algeria management should carefully plan for the significant additional resources that would be necessary in the event of changes to either the capital or overall supervisory regime.

December 31, 2008

#7

The tasks necessary to complete implementation are mainly under the purview of Bank of Algeria supervisory management. The resources needed to implement risk-based supervision will also support implementation of Basel II when adequate infrastructure is in place to support this in 3-4 years.

Resources identification and information : 1. 2. 3.

Identify individuals charged with implementation of risk-based supervision, and provide them with sufficient authority and resources; this will likely necessitate certain changes to organizational structure and/or reporting relationships. Arrange for any changes to in organizational structure and/or reporting relationships necessary to support new supervisory routines. Identify additional resources required to support efforts to implement risk-based supervision as a necessary precursor to adoption of Basel II, including internet access, attendance at foreign training events, cost of consultants and/or additional technical assistance, etc.

4. Implement changes as indicated to on-going budget and other processes.

4