The world’s top bankers and banking regulators have signed of on a new capital-adequacy framework for global banks known as Basel II.

But many of the world’s largest banks see significant challenges remaining in implementing the accord, according to a survey of global banks.

Central bank governors and the heads of bank supervisory authorities in the Group of 10 countries endorsed the publication of Basel II at a meeting at the Bank for International Settlements in Basel, Switzerland, on the weekend. Basel II updates and expands 1988 capital rules for risk-management practices that align capital more closely with operational, credit and market risks for banks operating internationally.

The BIS says the new framework reinforces risk-sensitive requirements by laying out principles for banks to assess the adequacy of their capital and for supervisors to review such assessments to ensure banks have adequate capital to support their risks. It also aims to strengthen market discipline by enhancing transparency in banks’ financial reporting. The model will serve as the basis for national rule-making and approval processes to continue and for banks to complete their preparations for the new framework’s implementation.

Discussions will continue on key implementation issues with the industry as domestic adoption and approval processes proceed. The goal is for the new framework to be available for implementation in member jurisdictions as of yearend 2006, while the most advanced approaches to risk measurement will be available for implementation as of yearend 2007 to allow banks and supervisors to benefit from an additional year of impact analysis or parallel capital calculations under the existing and new rules. The G10 governors and supervisors encouraged authorities in other jurisdictions to consider the readiness of their supervisory structures for the Basel II Framework and recommended that they proceed at their own pace, based on their own priorities.

“Basel II embraces a comprehensive approach to risk-management and bank supervision,” said Jean-Claude Trichet, chairman of the G10 group of central bank governors and heads of bank supervisory authorities and president of the European Central Bank. “It will enhance banks’ safety and soundness, strengthen the stability of the financial system as a whole, and improve the financial sector’s ability to serve as a source for sustainable growth for the broader economy. I am pleased to offer this revised framework to the international community.”

But the survey banks worldwide found that substantial numbers of banks remain uncertain over budgets, a lack of confidence in risk-management frameworks and economic capital systems, and insufficient progress in implementation of the credit-risk measurement tools required to meet the new regulation.

Survey results indicate that U.S. and Asia-Pacific banks lag their European counterparts in several key areas of preparation for Basel II.

The survey by the Financial Times of London of executives responsible for Basel II compliance at 97 of the world’s 200 largest banks in April and May was designed to gauge how major banks worldwide are responding to the challenges of the Basel II Accord.

According to the survey, uncertainty on the total cost of compliance is broad, with nearly a third of respondents saying they remain unsure of the total cost of their Basel II program. Of those banks providing estimates, most banks with assets under US$100 billion expect price tags of €50 million or less while nearly two-thirds of larger banks project costs of more than €50 million.

But most banks said they see significant benefits from Basel II, especially in improved capital allocation and better risk-based pricing. More than 70% said they are planning to adopt the accord’s advanced regulatory approaches on both the credit risk and operational risk sides.

The survey was sponsored by management consultants Accenture and Mercer Oliver Wyman and software provider SAP.