Basel II: panacea or a missed opportunity?
DOI:
https://doi.org/10.13133/2037-3643/9828Keywords:
Bank, BankingAbstract
At end-June 2004, the Basel Committee on Banking Supervision finally issued the "New Capital Accord" ("Basel II"), following endorsement by G10 bank supervisors. The Accord replaces the original accord agreed in July 1988 and implemented by most major international banks since 1993. Publication followed years of exhausting work by the Committee to improve upon the original in the light of market developments, advances in risk management and revealed deficiencies in the operation of the current scheme. This article traces the evolution of Basel II, focussing on the post-2000 period. The Impact of the three rounds of consultation on the final shape of the Accord is explored, as is the role played by the Quantitative Impact Studies (particularly, "QIS3"). Finally, Basel II is assessed from a "cost-benefit" standpoint, and outstanding concerns are identified.
JEL Codes: G21, G28
References
ALLEN, L. and SAUNDERS, T. (2003), "A survey of cyclical effects in credit risk measurement models", BIS Working Paper, no. 126, January.
AYUSO, J., D. PÉREZ and J. SAURINA (2002), "Are capital buffers pro-cyclical?", paper presented at a conference organised by the BIS on "Basel II: An Economic Assessment", Basel, 14-15 May.
BASEL COMMITTEE (1996), Amendment to the Capital Accord to Incorporate Market Risks, January, Basel.
BASEL COMMITTEE (1999), A New Capital Adequacy Framework, a consultative paper, June, Basel.
BASEL COMMITTEE (2000), A New Capital Adequacy Framework: Pillar III, Market Discipline, consultation paper, January, Basel.
BASEL COMMITTEE (2001), The New Basel Capital Accord, Consultative Document, January, Basel.
BASEL COMMITTEE (2001), The Standardised Approach to Credit Risk, Supporting Document to the New Basel Capital Accord, January, Basel.
BASEL COMMITTEE (2001), The Internal Ratings-Based Approach to Credit Risk, Supporting Document to the New Basel Capital Accord, January, Basel.
BASEL COMMITTEE (2001), Management and Supervision of Interest Rate Risk in the Banking Book, Supporting Document to the New Basel Capital Accord, January, Basel.
BASEL COMMITTEE (2001), Asset Securitisation, Supporting Document to the New Basel Capital Accord, January, Basel.
BASEL COMMITTEE (2001), Pillar 2: Supervisory Review Process, Supporting Document to the New Basel Capital Accord, January, Basel.
BASEL COMMITTEE (2001), Pillar 3: Market Discipline, Supporting Document to the New Basel Capital Accord, January, Basel.
BASEL COMMITTEE (2001), Results of the Second Quantitative Impact Study, November, Basel.
BASEL COMMITTEE (2002), Public Disclosures by Banks: Results of the 2000 Disclosure Survey, May, Basel.
BASEL COMMITTEE (2003), Quantitative Impact Study 3 – Overview of Global Results, 5 May, Basel.
BASEL COMMITTEE (2003), The New Basel Capital Accord: Third Consultative Paper, April, Basel.
BASEL COMMITTEE (2003), Basel II: Significant Progress on Major Issues, Press Release, 11 October, Basel.
BASEL COMMITTEE (2003), High Level Principles for the Cross-Border Implementation of the New Capital Accord, August, Basel.
BASEL COMMITTEE (2003), "Markets for bank subordinated debt and equity in Basel Committee Member Countries", BIS Working Paper, no. 12, August.
BASEL COMMITTEE (2003), Public Disclosures by Banks: Results of the 2001 Disclosure Survey, May, Basel.
BASEL COMMITTEE (2004), The International Convergence of Capital Measurement and Capital Standards: A Revised Framework ("Basel II"), Basel, 26 June.
BASEL COMMITTEE (2004), Continued Progress Toward Basel II, Press Release, Basel, 15 January.
BASEL COMMITTEE (2004), Consensus Achieved on Basel II Proposals, Press Release, Basel, 11 May.
BASEL COMMITTEE (2004), Principles for the Home/Host Regulation of AMA Operational Risk Capital, January, Basel.
BAUMANN, U. and N. ERLEND (2003), "Disclosure in banking: what matters most?", presentation given at the Federal Reserve Bank of New York's conference on "Beyond Pillar 3 in International Banking Regulation", New York, October.
BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM (2002), "Improving public disclosure in banking', Staff Study, no. 173, Study Group on Disclosure, Federal Reserve System.
CARUANA, J. (2003), "A vision of stability within the Basel Accord", Financial Times, 30 October, p. 21.
CARUANA, J. (2003), Keynote speech delivered at the Market Discipline Conference organised by the Federal Reserve Bank of Chicago and the BIS, Chicago, 1 November.
CATERINEU-RABELL, E., P. JACKSON and D. TSOMOCOS (2003), "Procyclicality and the new Basel Accord – banks' choice of loan rating system", Working Paper, no. 181, Bank of England.
CORNFORD, A. (2004), "Basel II: vintage 2003", Journal of Financial Regulation and Compliance, vol. 12, no. 1, pp. 22-35.
DÉCAMPS, J.P., B. ROGER and J.C. ROCHET (2004), "The 3 pillars of Basel 2: optimising the mix", Journal of Financial Intermediation, forthcoming.
EC (1993), Capital Adequacy of Investment Firms and Credit Institutions (the 'Capital Adequacy Directive'), Council Directive 93/6/EEC, March.
ERVIN, W. and T. WILDE (2001), "Procyclicality in the New Basel Accord", Credit Risk Special Report, Risk Magazine, October.
FABI, F., S. LAVIOLA, S. and P. MARULLO REEDTZ (2004), "The treatment of SMEs loans in the New Basel Capital Accord: some evaluations", Banca Nazionale del Lavoro Quarterly Review, vol. 57, no. 228, pp. 29-70.
HALL, M.J.B. (1989), "The BIS capital adequacy rules: a critique", Banca Nazionale del Lavoro Quarterly Review, vol. 42, no. 169, pp. 207-27.
HALL, M.J.B. (1994), "The measurement and assessment of capital adequacy for banks: a critique of the G10 agreement", in C.A. Stone and A. Zissu eds, Global Risk- Based Capital Regulation, vol. 1: Capital Adequacy, Irwin Publishers, Homewood, pp. 270-86.
HALL, M.J.B. (1997), "Banking regulation in the European Union: some issues and concerns", The International Executive, vol. 39, no. 5, pp. 675-705.
HALL, M.J.B. (1999), Handbook of Banking Regulation and Supervision in the UK, 3rd edition, Edward Elgar, Cheltenham.
HALL, M.J.B. (2001), "The Basle Committee's proposals for a new capital adequacy assessment framework: a critique", Banca Nazionale del Lavoro Quarterly Review, vol. 54, no. 217, pp. 111-79.
HALL, M.J.B. ed. (2001), The Regulation and Supervision of Banks, vol. III: The Regulation of Bank Capital, Edward Elgar, Cheltenham.
HALL, M.J.B., P. HAMALEINEN and B. HOWCROFT (2003), "Market discipline: a theoretical framework for regulatory policy development", Research in Financial Services: Private and Public Policy, vol. 15, December, pp. 57-98.
HALL, M.J.B., P. HAMALEINEN and B. HOWCROFT (2004), "A framework for implementing market discipline in financial regulatory design", Journal of Business Finance and Accounting, forthcoming.
HERRING, R.J. (2003), "How can the invisible hand strengthen prudential supervision?", paper presented at the Market Discipline Conference organised by the Federal Reserve Bank of Chicago and the BIS, Chicago, 1 November.
HM TREASURY (2003), The New Capital Adequacy Directive, CAD3: The Transposition of the New Basel Accord into EU Legislation, Consultation Document, London, December.
INSTITUTE FOR INTERNATIONAL FINANCES - IIF (2003), IIF Response to the Third Consultative Paper of the Basel Committee on Banking Supervision, July.
JACKSON, P. (2002), "Bank capital: Basel II developments", Financial Stability Review, December, pp. 103-09.
JONES, D. (2000), "Emerging problems with the accord: regulatory capital arbitrage and related issues", Journal of Banking and Finance, vol. 24, Special Issue, pp. 35- 58.
KAUFMAN, G.G. (2003), "Basell II: the roar has moused", Loyola University of Chicago, October, mimeo.
KUPIEC, P.H. and J.M. O'BRIEN (1996), "Bank capital regulation for market risks", Financial Markets Group Special Paper, no. 90, London School of Economics, London.
LOWE, P. (2002), "Credit risk measurement and procyclicality', BIS Working Paper, no. 116, September.
O'NEILL, N. (1999), "Market implications of Basle reforms", Butterworths Journal of International Banking and Financial Law, vol. 14, no. 7, pp. 282-85.
ROCHET, J.-C. (2003), "Rebalancing the 3 Pillars of Basel 2", paper presented at the Federal Reserve Bank of New York's Conference on "Beyond Pillar Three in International Banking Regulation", New York, 2 October.
SCHAFFER, S. (1995), "Rethinking disclosure requirements", Federal Reserve Bank of Philadelphia Business Review, May, pp. 15-29.
US SHADOW FINANCIAL REGULATORY COMMITTEE (2000), Reforming Bank Capital Regulation, American Enterprise Institute, Washington.
Downloads
Published
How to Cite
Issue
Section
License
