Basle II

player · November 19th, 2005, 11:48 am

A couple of questions on Basle II1) What does it aim to do?2) What are the problems about it??As I understand it with Basle II banks will estimate the risk by means of their own internal models and use thier risk estimate to calculate minimum capital requirements. In additon the rules guiding how banks calculate risk is the same.. Is this correct??The problems with Basle seems to be that large banks will be holding less capital than they currently hold while small banks will be holding more than currnetly held???

ntruwant · November 19th, 2005, 12:45 pm

1) aims: there are a lot, like spreading the 'best practices' in the industry around banks, better estimation of internal risks, better communication of risks,...2) problems: ?3) large banks less capital than small banks: for credit risk this is certainly not true. Here the big winners are the retail (small credits) sector,where capital requirements may be divided by more than 2

DominicConnor · November 20th, 2005, 1:12 pm

The problems with Basle seems to be that large banks will be holding less capital than they currently hold while small banks will be holding more than currnetly held???Why do you see this as a problem ?A larger bank should be able to manage it's risk better.

genkideska · November 21st, 2005, 6:33 am

one issue from germany: in the german economy the small and medium sized enterprises play an important role ("Der Mittelstand"). Under Basel II your Rating is supposed to determine the capital requirements and thus the interest on your loan. Since most SME do not have an rating this will be resulting in rising interest costs for the industry.This point is just an example how international rules can be in conflict with local reality.

AlanS · November 22nd, 2005, 2:39 pm

QuoteWhy do you see this as a problem ? A larger bank should be able to manage it's risk betterThis is a problem for politicians who don't want to be seen to be legislating in favour of the big bad international banks over local ones.

mellisacat · November 23rd, 2005, 11:32 pm

I know the compliance has been delayed to 2009. In US, it is required only for large-size banks. Basel II are all about economic capitals, especially charges for operational risk. It falls into the topic of risk management. Go www.garp.org or PRIMA for details.