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Article
Publication date: 9 May 2008

Hussein A. Hassan Al‐Tamimi

This study aims at exploring the UAE banks' Basel II preparations. It is essential for the UAE banks to make adequate preparations to ensure their compliance with international…

1633

Abstract

Purpose

This study aims at exploring the UAE banks' Basel II preparations. It is essential for the UAE banks to make adequate preparations to ensure their compliance with international standards and practices in the field of banking.

Design/methodology/approach

The author developed a modified version of the Ernst & Young questionnaire to examine the UAE banks' Basel II preparations. Five hypotheses have been formulated and tested.

Findings

Based on the results of the analysis in this study, it is concluded that the UAE banks are ready for the implementation of Basel II. This conclusion is supported by the fact that the UAE banks have sufficient resources for the implementation of Basel II, which represents a prerequisite for the implementation. The readiness of the UAE banks for implementing Basel II is also supported by the common understanding of Basel II by the employees of the UAE banks and the satisfactory level of education on Basel II. The results also indicate that there is no difference between UAE national and foreign banks in their readiness for the implementation of Basel II, which gives a positive impression about the competitive advantage of the national banks. Finally, the results support the importance of training and education on Basel II as one of the requirements of the implementation.

Practical implications

Improving the level of education on Basel II is still needed and this can be achieved because of the availability of the required resources and the awareness of the UAE banks of the benefits, the positive impact, and the challenges of the implementation of Basel II, as indicated by the results. The results also support the importance of training and education on Basel II as one of the requirements of the implementation.

Originality/value

The paper is important for the decision makers of the UAE banks and the regulators as the main objective of the study is to increase their awareness of the implementation of Basel II. The results would help the UAE banks to know the level of their Basel II preparations and what are the necessary steps that should be taken in this regard. The results would also help the regulators regarding the required steps that should be taken by the UAE Central Bank in order to motivate or encourage the UAE banks in implementing Basel II properly.

Details

Journal of Financial Regulation and Compliance, vol. 16 no. 2
Type: Research Article
ISSN: 1358-1988

Keywords

Article
Publication date: 1 September 2004

Rosa Maria Lastra

The Basel Committee has proposed a new capital framework to respond to the deficiencies of the 1988 Capital Accord (Basel I). The 1988 Accord has been criticised for its crude…

2488

Abstract

The Basel Committee has proposed a new capital framework to respond to the deficiencies of the 1988 Capital Accord (Basel I). The 1988 Accord has been criticised for its crude assessment of risk and for creating opportunities for regulatory arbitrage. In principle, the new approach, often referred to as Basel II, is not intended to raise or lower the overall level of regulatory capital currently held by banks, but to make it more risk sensitive. The spirit of the new Accord is to encourage the use of internal systems for measuring risks and allocating capital (the Accord extends the use of internal models from market risk to credit risk). A number of issues have been raised, however, with regard to its complexity, its cost, its impact on procyclicality, the possibility that it can lead to competitive distortions if some countries do not apply it (some big emerging economies) or apply it differently to small and big institutions (the USA) and others. Banks in Europe will also be obliged to comply with the new Capital Directive, often referred to as CAD III, which is the means by which the EU will implement the new Basel Capital Accord. CAD III will apply to all credit institutions and investment firms and not only to internationally active banks, as Basel does. This paper presents a critical approach to these developments and examines their impact upon the banking industry.

Details

Journal of Financial Regulation and Compliance, vol. 12 no. 3
Type: Research Article
ISSN: 1358-1988

Keywords

Article
Publication date: 1 October 2006

Francisco Flores, Enrique Bónson‐Ponte and Tomás Escobar‐Rodríguez

The purpose of this paper is to analyse the capacity of response of the banking sector's information systems (IS), in the light of the new requirements of Basel II (Basel Bank for…

2528

Abstract

Purpose

The purpose of this paper is to analyse the capacity of response of the banking sector's information systems (IS), in the light of the new requirements of Basel II (Basel Bank for International Settlements) on the measurement and control of operational risk (OR).

Design/methodology/approach

By means of a structured case, developed with a Spanish savings bank of medium size, an analysis is made of the practices and structures that may need to be modified to prevent a loss of competitive position. Lastly specific improvements are proposed to facilitate the implementation of an operational risk information system (OR‐IS).

Findings

The paper concludes that there still exists a considerable distance between the current IS in use and an OR‐IS compatible with the model proposed under Basel II, for that kind of entities, and indicates the opportunities and incentives that would arise in the attempt to reduce this distance.

Practical implications

The IS of a bank should evolve towards the achievement of an OR‐IS that enables the bank's competitive position to be strengthened. In addition, the bank should aspire to obtain the external validation of its supervisory authority, which certifies the OR‐IS implemented and classifies it as an advanced measurement approach (AMA) under Basel II. An analysis is made of the principal organisational weaknesses and necessities that should be rectified, with a view to applying the methodologies designated the AMA to OR in the Basel II agreement.

Originality/value

Basel II has given increased visibility to the “OR” variable and there has been little explicit research into the process by which managers and organisations at medium sized entities decide to develop IS capable to measure and mitigate this new risk.

Details

Journal of Financial Regulation and Compliance, vol. 14 no. 4
Type: Research Article
ISSN: 1358-1988

Keywords

Book part
Publication date: 8 November 2010

Pierre-Richard Agénor and Luiz A. Pereira da Silva

Purpose – To discuss, from the perspective of developing countries, recent proposals for reforming international standards for bank capital requirements.Methodology/approach …

Abstract

Purpose – To discuss, from the perspective of developing countries, recent proposals for reforming international standards for bank capital requirements.

Methodology/approach – After evaluating, from the viewpoint of developing countries, the effectiveness of capital requirements reforms and progress in implementing existing regulatory accords, the chapter discusses the procyclical effects of Basel regimes, and suggests a reform proposal.

Findings – Minimum bank capital requirements proposals in developing countries should be complemented by the adoption of an incremental, size-based leverage ratio.

Originality/value of chapter – This chapter contributes to enlarge the academic and policy debate related to bank capital regulation, with a particular focus on the situation of developing countries.

Details

International Banking in the New Era: Post-Crisis Challenges and Opportunities
Type: Book
ISBN: 978-1-84950-913-8

Article
Publication date: 1 December 2004

Ian Wilson

This paper forms part of a presentation on the same subject given by the author to the Basel II conference organised by the Securities Institute in London during March 2004. It is…

1410

Abstract

This paper forms part of a presentation on the same subject given by the author to the Basel II conference organised by the Securities Institute in London during March 2004. It is a case study based on the author’s experience in Barclays Bank on the preparations required for successful implementation of the new Basel II Accord. First it considers changes to regulatory capital, and then goes on to examine the main challenges that lie ahead and, finally, the advantages and disadvantages of adopting one of the internal ratings‐based approaches. The views and opinions expressed in this paper are those of the author and do not necessarily reflect the views or opinions of the Barclays Group.

Details

Journal of Financial Regulation and Compliance, vol. 12 no. 4
Type: Research Article
ISSN: 1358-1988

Keywords

Article
Publication date: 15 November 2011

Stefan Schwerter

The financial crisis 2007‐2009 calls for a regulatory response. A crucial element of this task is the treatment of systemic risk. Basel III gains centre stage in this process…

6045

Abstract

Purpose

The financial crisis 2007‐2009 calls for a regulatory response. A crucial element of this task is the treatment of systemic risk. Basel III gains centre stage in this process. Thus, the purpose of this paper is to evaluate Basel III, examining its ability to reduce systemic risk.

Design/methodology/approach

The paper highlights the importance of reducing systemic risk to achieve the goal of overall financial stability. By first focusing on the theoretical foundations of systemic risk, this paper explores and analyzes the crucial aspects of this almost impalpable risk type. It further investigates the current regulation of systemic risk, clearly showing Basel II's inability to reduce it. Then, it evaluates the Basel Committee's efforts to address these weaknesses through Basel III by investigating its incentives and its ability to reduce obvious drawbacks of Basel II as well as systemic risk factors.

Findings

The findings show that there are still adjustments necessary. Although the development of Basel III is well advanced, providing some stabilizing incentives, there are still issues calling for closer consideration to counter all Basel II drawbacks and systemic risk factors adequately. These include: a risk‐weighted leverage ratio; a more thorough treatment of procyclicality; adjustments for the NSFR (Net Stable Funding ratio); and most importantly, the mandatory issue to internalize negative externalities from financial institutions, that is, the call for pricing systemic risk.

Originality/value

The paper not only examines the new Basel III framework, as a response to the Financial Crisis 2007‐2009, but also draws attention to specific areas which the Basel Committee and regulators need to focus on more thoroughly.

Details

Journal of Financial Regulation and Compliance, vol. 19 no. 4
Type: Research Article
ISSN: 1358-1988

Keywords

Article
Publication date: 9 May 2016

Silvio Tarca and Marek Rutkowski

This study aims to render a fundamental assessment of the Basel II internal ratings-based (IRB) approach by taking readings of the Australian banking sector since the…

Abstract

Purpose

This study aims to render a fundamental assessment of the Basel II internal ratings-based (IRB) approach by taking readings of the Australian banking sector since the implementation of Basel II and comparing them with signals from macroeconomic indicators, financial statistics and external credit ratings. The IRB approach to capital adequacy for credit risk, which implements an asymptotic single risk factor (ASRF) model, plays an important role in protecting the Australian banking sector against insolvency.

Design/methodology/approach

Realisations of the single systematic risk factor, interpreted as describing the prevailing state of the Australian economy, are recovered from the ASRF model and compared with macroeconomic indicators. Similarly, estimates of distance-to-default, reflecting the capacity of the Australian banking sector to absorb credit losses, are recovered from the ASRF model and compared with financial statistics and external credit ratings. With the implementation of Basel II preceding the time when the effect of the financial crisis of 2007-2009 was most acutely felt, the authors measure the impact of the crisis on the Australian banking sector.

Findings

Measurements from the ASRF model find general agreement with signals from macroeconomic indicators, financial statistics and external credit ratings. This leads to a favourable assessment of the ASRF model for the purposes of capital allocation, performance attribution and risk monitoring. The empirical analysis used in this paper reveals that the recent crisis imparted a mild stress on the Australian banking sector.

Research limitations/implications

Given the range of economic conditions, from mild contraction to moderate expansion, experienced in Australia since the implementation of Basel II, the authors cannot attest to the validity of the model specification of the IRB approach for its intended purpose of solvency assessment.

Originality/value

Access to internal bank data collected by the prudential regulator distinguishes this paper from other empirical studies on the IRB approach and financial crisis of 2007-2009. The authors are not the first to attempt to measure the effects of the recent crisis, but they believe that they are the first to do so using regulatory data.

Article
Publication date: 28 January 2014

Constantinos Lefcaditis, Anastasios Tsamis and John Leventides

The IRB capital requirements of Basel II define the minimum level of capital that the bank has to retain to cover the current risks of its portfolio. The major risk that many…

1703

Abstract

Purpose

The IRB capital requirements of Basel II define the minimum level of capital that the bank has to retain to cover the current risks of its portfolio. The major risk that many banks are facing is credit risk and Basel II provides an approach to calculate its capital requirement. It is well known that Pillar I Basel II approach for credit risk capital requirements does not include concentration risk. The paper aims to propose a model modifying Basel II methodology (IRB) to include name concentration risk.

Design/methodology/approach

The model is developed on data based on a portfolio of Greek companies that are financed by Greek commercial banks. Based on the initial portfolio, new portfolios were simulated having a range of different credit risk parameters. Subsequently, the credit VaR of various portfolios was regressed against the credit risk indicators such as Basel II capital requirements, modified Herfindahl Index and a non-linear model was developed. This model modifies the Pillar I IRB capital requirements model of Basel II to include name concentration risk.

Findings

As the Pillar I IRB capital requirements model of Basel II does not include concentration risk, the credit VaR calculations performed in the present work appeared to have gaps with the Basel II capital requirements. These gaps were more apparent when there was high concentration risk in the credit portfolios. The new model bridges this gap providing with a correction coefficient.

Practical implications

The credit VaR of a loan portfolio could be calculated from the bank easily, without the use of additional complicated algorithms and systems.

Originality/value

The model is constructed in such a way as to provide an approximation of credit VaR satisfactory for business loan portfolios whose risk parameters lie within the range of those in a realistic bank credit portfolio and without the application of Monte Carlo simulations.

Details

The Journal of Risk Finance, vol. 15 no. 1
Type: Research Article
ISSN: 1526-5943

Keywords

Article
Publication date: 1 December 2003

Thomas Garside and Jens Bech

International regulators are due to finalize the New Basel Capital Accord by the end of 2003, for implementation by banks at the end of 2006. Basel II is a response to the need…

6461

Abstract

International regulators are due to finalize the New Basel Capital Accord by the end of 2003, for implementation by banks at the end of 2006. Basel II is a response to the need for reform of the regulatory system governing the global banking industry. In this article, we review the New Basel Capital Accord and summarize some of the main implications that we expect it to have on the European banking industry. As was the case for the first Basel Accord (Basel I), we conclude that not only will the new accord have an impact on the amount of book capital that banks are required to hold, but also on the strategic landscape of the banking industry.

Details

Balance Sheet, vol. 11 no. 4
Type: Research Article
ISSN: 0965-7967

Keywords

Book part
Publication date: 4 December 2018

Indranarain Ramlall

Abstract

Details

The Banking Sector Under Financial Stability
Type: Book
ISBN: 978-1-78769-681-5

1 – 10 of over 2000