Basel Essay

1814 words - 8 pages

The goals of Basel 1 were basically two. The first goal was aimed at bringing to the same level the playing field for internationally competing banks. The second one sought to minimize the possibilities of such competition causing bidding down of the capital ratios to extremely low levels. Surprisingly, the 1998 accord successfully witnessed impressive milestones towards the achievement of these two goals, equitable grounds for competition were attained and capital standards were tremendously strengthened within and even beyond the G-10. Compared to what had come before, this was a huge breakthrough, especially considering the general acceptance as well as implementation of the capital needs beyond the Basel committee membership. To a large extent, the biggest problem has been the extremely limited sensitivity of the accord to the risks involved. The idea of classifying debtors into several risk buckets was obviously a milestone in 1988. On the other hand a gap was created between the regulatory measurement if risks involved in a given transaction and the real economic risk, leading to counter intuitive outcome. For example, a system requiring more regular capital to grant a non-investment grade Mexican bank, a 1 year loan compared to a 10 yea loan, is more discriminating than it should actually be.
The most disturbing disadvantage of the gap created between regulatory and actual economic risk has always been the negative disruption of financial decision making which include huge amounts of arbitrage or instances of investments being made on the grounds of regulatory limitations instead of truthful economic opportunities. On one hand, this out rightly suggests a significant cost of regulation relative to enjoying an efficient market. On the other hand, one can easily conclude that the very reason for the existence of the standards is being undermined because measurement of the risk might result to insignificant relation to the level of risk involved in the underlying transfer.
Talking in favor of Basel 1, it must be remembered that every strict rule-based approach to the regulation is eventually bound to get in the risk of changing activities in unforeseen ways and also encouraging regulatory arbitrage. Here, for one to firmly acknowledge that a system is far better that what was there before is not a small achievement. Unfortunately, with the modern economic and financial transactions becoming more and more complex, the scope for distortions is also growing. This appears to have caused a shift in the debate which seems to be in favor of principle rather than the rule-based approaches. This is not only happening in banking supervision but also in financial regulation to a large extent. A perfect example for this scenario is the response to the Enron case and numerous other latest accounting scandals.
Impact on the emerging market for financial system
Numerous international initiatives were behind the reasons why governments and supervisors...

Find Another Essay On basel

Capital Adequacy Essay

1956 words - 8 pages Australia’s Capital Adequacy in the past 20 years First I will briefly talk about Basel one capital accord this would enable us to understand how the banking system works then we can go ahead to talk about the change in the past 20 years. Introduction on Basel One G 10, Switzerland and Luxembourg together due to the changes caused buy deregulations, globalization and the rise of efficient machinery close to 1974 lay down the foundation of

"Thinking Big - A Survey of International Banking"

4732 words - 19 pages role of the savings bank (either as a minimum service for people without alternative or a rival to the banks) after the complete privatisation by 2007, which has not been clarified.As banks get bigger, they also become smarter. That's why International Convergence of Capital Measures and Capital Standards ("Basel II") was introduced and encouraged to adopt in all countries with international banks. Its principle is that banks should have the option

Risk Assessment of Five Companies in the United Kingdom

1668 words - 7 pages Introduction In this assignment, I am going to analyse and find out the risk of five companies for a certain period of time. I have chosen five FTSE 100 companies and assuming that Marylebone Bank invests £20million in shares for each company. I have chosen Barclays, BP, Next, M&S and Admiral. To do this, I have collected the 501 days adjusted close price from the period of 06/03/2014 till 12/03/2012. I would calculate VaR under Basel 1 and 2

International Banking

1214 words - 5 pages Adequacy Basel 2.5 Basel 2 Works Cited http://www.washingtonpost.com/business/how-deutsche-bank-found-alternative-ways-for-profitability-under-basel-iii-regulations/2014/03/07/48cbd3b0-a316-11e3-a5fa-55f0c77bf39c_story.html https://www.db.com/ir/en/content/ir_releases_2012_dez.htm https://www.db.com/en/content/company/Facts-and-Figures.htm https://annualreport.deutsche-bank.com/2012/ar/servicepages/downloads/files/dbfy2012_entire.pdf http

Leonhard Euler

671 words - 3 pages Leonhard Euler Euler made large bounds in modern analytic geometry and trigonometry. He made decisive and formative contributions to geometry, calculus and number theory. Born: 15 April 1707 in Basel, Switzerland Died: 18 Sept 1783 in St Petersburg, Russia Introduction Euler's father wanted his son to follow him into the church and sent him to the University of Basel to prepare for the ministry. However geometry soon became

Leonhard Euler

570 words - 2 pages theory of light, and the hydromechanics of ships.Euler was born in Basel, Switzerland. His father, a pastor, wanted his son to follow in his footsteps and sent him to the University of Basel to prepare for the ministry, but geometry soon became his favorite subject. Through the intercession of Bernoulli, Euler obtained his father's consent to change his major to mathematics. After failing to obtain a physics position at Basel in 1726, he joined the

Leonhard Euler

648 words - 3 pages ship (O'Connor). However Euler's contribution was ended when he died suddenly at the age of seventy-six and blind.Leonhard Euler was born in Basel, Switzerland on April 15, 1707 to a Protestant family which led him to be a devout Christian all of his life (O'Connor). Euler whose father was a Protestant minister and his mother who was the daughter of a minister wished for their son to educate himself and enter the ministry. Therefore he was sent

Financial Instruments, Institutions and Market module - FIN301 - Assignment

6176 words - 25 pages -posts-16-drop-in-q1-profit-7738654 (this can see if can use too)http://www.investopedia.com/exam-guide/cfa-level-1/securities-markets/weak-semistrong-strong-emh-efficient-market-hypothesis.asp ? this website got explain which tests are used for Analysing each form. Question 2: Basel III Agreement In 1974, the Basel Committee on Bank Supervision (BCBS) was established to improve and enhance the quality of banking supervision on a worldwide

The Life of Leonhard Euler

1351 words - 6 pages The Life of Leonhard Euler Leonhard Paul Euler was born on April 15th, 1707 in Basel, Switzerland and died on November18th, 1783 in St. Petersburg, Russia. Even from a young age, Euler was discovered by many, including his father (Paulus) and instructor (Johann I Bernoulli), to be extraordinarily proficient in mathematics. When he was just 15 years of age, Euler concluded his studies at the University of Basel. Euler wrote a prize winning

The Capital Markets Process of Securitisation

3569 words - 14 pages securitisation market is ever evolving, with the introduction of Basel II in 2007 impacting of the future level of securitisation. Furthermore as financial instruments become more sophisticated it is expected that the types of assets being securitised will also evolve.Letter of TransmittalTO: Ms Julie MargetFROM: Lucy DronDATE: 9 September 2004SUBJECT: The capital markets process of securitisationHere is the business report requested at the beginning of

Leonhard Euler's Life and Accomplishments

719 words - 3 pages Leonhard Euler was born in Basel, Switzerland as the first born child of Paul Euler and Marguerite Brucker on April 15, 1707. Euler’s formal education started in Basel where he was sent to live with his maternal grandmother on his father’s orders. Euler's father wanted his son to follow him in working for the church and sent him to the University of Basel to prepare him in becoming a pastor. He entered the University in 1720 to gain general

Similar Essays

Banking Regulation Basel Ii Essay

1879 words - 8 pages Procyclicality in minimum regulatory capital charges for credit risk There is a vast amount of literature available on the additional procyclicality of regulatory capital charges in Pillar 1 of Basel II. In this section, we shall briefly visit this literature and see if any conclusions can be drawn from this, before proceeding to the conclusion and mitigation of these procyclical effects. The majority of the literature, as expected, focuses

Is Basel Iii Enough? Essay

1445 words - 6 pages The global financial crisis hit banks’ regulation at its core. As significant portion of this crisis’ responsibility has been attributed to the lack of effective banking oversight, there has been immense pressure on the next Basel agreement to tackle such issues in order to avoid future crises, or at least decrease their severity. In essence, the Basel accords mainly intend to gauge the level of capital required to protect banks against risks

Ewaste And The Basel Convention Essay

1489 words - 6 pages ; according to the US Environmental Protection Agency an estimate of 5 to 10 percent increase worldwide is expected each year (STEP Initiative). Even more alarming is that only 5% of this amount is being recovered and is properly disposed (STEP Initiative). “Today’s globally interconnected economy ensures that there is no county in the world that does not have a hazardous waste problem” (Basel Convention, Simplified Text). Despite this being a global

Acct3635 Group Assignment

461 words - 2 pages Body 1 Before discussing how Basel III impact on China’s banking system, the failings of Basel II accord needs to be known. China has declared initially that it will not implement Basel II system as they do not expect that a huge amount of their banking assets will be complemented by Basel II in 2015. Therefore, China decided that the capital requirements regime for their banks will still be based on the 1988 Basel Capital Accord. The 1988