Hi! Does anyone have any tips for an accessible overview of the Basel II accord with focus on credit risk? Thanks!

i am affraid 70% of Basel II, revised document, comprehensive version (what else it can be?) is dedicated to Credit Risk.what do you mean accessible? chewed?otherwise look Basel place

hi! yeah i guess it was knid of vague..sorry. i was more thinking in the lines of "Appraocehes to Credit Risk in the New Basel Capital Accord" by Benzin, Trück and Rachev. Like a very simple simple, destilled text that allows you to get the main ideas. thanks anyway iwill try to be more specific!

First post for a while (I've had nothing to say), but I guess this time, I can contribute...The Basel II Framework is intended to provide a more risk sensitive approach than the current "Basel I" accord. For example, under Basel I, a loan to a AAA rated corporate that is collateralised with Treasuries will attract the same capital charge as a non-investment grade unsecured loan. The framework also accepts that market and credit risk are not the only flavours of risk a bank has. There is a new capital charge to reflect operational risk - losses arising from the failure of systems, controls and processes. There is an overriding principle that currently the level of capital in the banking system is OK, so the framework is supposed to keep overall capital levels about the same. The way this is achieved is by giving back with the increased credit risk sensitivity, but taking away with the operational risk charge. Some banks may benefit, for example a mortgage bank with good processes and controls, and a good LTV ratio will do well under Basel II, but a bank with an operations-heavy securities services business and not much lending will probably lose out. The framework is not enforceable, so each country (with the added bonus of the European Union for some of us) has to define its own version, which then become enacted as part of local banking regulation. This is a source of much joy to firms with regulatory reporting responsibilities in many countries. For both credit and op risk the framework allows three options for the model to be implemented. In order of increasing risk sensitivity, and complexity, but likely decreasing risk weighted assets numbers for a fixed portfolio, these are:Operational Risk1. Basic Indicator approach - a percentage (15%) of average annual gross income. 2. Standardised approach - split the business into 8 business lines, each of which has a different weighting factor. Apply the appropriate weight to the average income for each business line. 3. The Advanced Measurement approach - An internal, statistical model that uses internal and market operational loss data. Credit Risk1. The standardised approach - maps agency ratings to risk weights for exposures. 2. The foundation internal ratings based approach - allows banks to use their own default probability models, but defines rules for credit conversion factors and loss given default values. 3. The advanced internal ratings based approach - banks can use their own models of probability of default, loss given default and conversion factors. For both internal ratings based approaches, the regulations provide formulae that give a risk weighted asset value for unexpected losses as a function of PD, LGD, exposure at default (EAD) and effective maturity (M). Credit risk mitigation such as collateral, credit derivatives and guarantees can be used to modify risk parameters. There are extra wrinkles for the credit risk associated with securitisation, equity and the trading book, but hey, it's Friday and I want to go home. I've only ever seen big, dull, expensive books on Basel II. For lighter weight options, I would recommend browsing some consultancy company web sites - their marketing material could prove useful. Hope this helps.

thanks csparker! that was a very good summary of the Basel II!

Basel II also tries to shift risk managers attention to be more innovative in their approach to monitor risks.I cannot compare with Basel-I (I did not read it in my time and will never do in future for obvious reason), but I can say about Basel-II development during last two years. One obvious shift during this period is to force RM's to think more about testing their assumptions, like, for example, in backtesting (which is related to model-risk/validation process). B-II forces RM's to pay attention about past business data for model calibration AND development. Therefore, it leads to further development of more complex risk management infrastructure. etc. etc. At the end, I see that B-II pushes into more "quantitative risk management".There are still some holes and inconsistencies in the final document, but as csparker said, between Basel-II and Bank still a long way to go: first, it should be put into law (Directives of European Comission, DEC's), then worked out by local regulators (they also add quite a few things).. In this process, the task of risk manager (among many others) is to identify the inefficiencies in B-II and to warn business in time to act proactively in order to reduce possible losses due to unreasonable restrictions. I mean, that there is still large room to negotiate with regulators.