Search results

1 – 10 of over 1000
To view the access options for this content please click here
Article

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…

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

To view the access options for this content please click here
Article

Semir Ibrahimovic and Ulrik Franke

This paper aims to examine the connection between information system (IS) availability and operational risk losses and the capital requirements. As most businesses today…

Abstract

Purpose

This paper aims to examine the connection between information system (IS) availability and operational risk losses and the capital requirements. As most businesses today become increasingly dependent on information technology (IT) services for continuous operations, IS availability is becoming more important for most industries. However, the banking sector has particular sector-specific concerns that go beyond the direct and indirect losses resulting from unavailability. According to the first pillar of the Basel II accord, IT outages in the banking sector lead to increased capital requirements and thus create an additional regulatory cost, over and above the direct and indirect costs of an outage.

Design/methodology/approach

A Bayesian belief network (BBN) with nodes representing causal factors has been used for identification of the factors with the greatest influence on IS availability, thus helping in investment decisions.

Findings

Using the BBN model for making IS availability-related decisions action (e.g. bringing a causal factor up to the best practice level), organization, according to the presented mapping table, would have less operational risk events related to IS availability. This would have direct impact by decreasing losses, related to those events, as well as to decrease the capital requirements, prescribed by the Basel II accord, for covering operational risk losses.

Practical implications

An institution using the proposed framework can use the mapping table to see which measures for improving IS availability will have a direct impact on operational risk events, thus improving operational risk management.

Originality/value

The authors mapped the factors causing unavailability of IS system to the rudimentary IT risk management framework implied by the Basel II regulations and, thus, established an otherwise absent link from the IT availability management to operational risk management according to the Basel II framework.

Details

Journal of Financial Regulation and Compliance, vol. 25 no. 2
Type: Research Article
ISSN: 1358-1988

Keywords

To view the access options for this content please click here
Article

Marianne Ojo

This paper not only aims to trace developments from the inception of the 1988 Basel Accord to its present form (Basel II), but also to highlight flaws inherent in the 1988…

Abstract

Purpose

This paper not only aims to trace developments from the inception of the 1988 Basel Accord to its present form (Basel II), but also to highlight flaws inherent in the 1988 Accord and Basel II, by way of reference to developments which occurred during the Northern Rock Crisis.

Design/methodology/approach

The paper highlights the importance of risks through a reference to the crucial role played by capital adequacy. In drawing attention to the importance of such a role and tracing developments which have taken place since the inception of the 1988 Basel Accord, it explores and analyses efforts of the Basel Committee to address capital measurement problems and assesses the success of such efforts through an illustration of capital measurement problems which still persist. An evaluation is made of the Basel Committee's efforts to address weaknesses of the 1988 Basel Accord through Basel II. Greater in‐depth evaluation of the effectiveness of the Basel Committee's efforts are undertaken through reference to developments which occurred during the Northern Rock Crisis, which is complemented by graphs and figures.

Findings

Whilst considerable progress has been achieved, the paper concludes on the basis of the principal aim of these Accords and failures of capital adequacy to address problems related to risk, that more work is still required particularly in relation to hedge funds, liquidity risks, and those risks attributed to non‐bank financial institutions.

Originality/value

The paper not only highlights existing problems with Basel II, as revealed in the aftermath of the Northern Rock Crisis, but also draws attention to other areas which the Basel Committee and regulators need to focus on.

Details

Journal of Financial Regulation and Compliance, vol. 18 no. 4
Type: Research Article
ISSN: 1358-1988

Keywords

To view the access options for this content please click here
Book part

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.…

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

To view the access options for this content please click here
Article

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…

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

To view the access options for this content please click here
Article

Omar Masood and John Fry

Recent events demonstrate that problems in the banking system pose a significant threat to the health of the global economy. Despite several shortcomings the Basel Accord

Abstract

Purpose

Recent events demonstrate that problems in the banking system pose a significant threat to the health of the global economy. Despite several shortcomings the Basel Accord thus emerges as an attempt to protect banking systems. The purpose of this study is to shed light on potential barriers to implementation of the Basel Accord in emerging countries. Several issues of wider interest to risk management and financial regulation also emerge.

Design/methodology/approach

The paper maps implementation of the Basel Accord against the wider regulatory context. Against this backdrop, the Basel Accord appears well‐motivated but is limited by several practical considerations. These factors, amidst other practical implications, are identified as the paper applies rigorous statistical methods to novel primary survey data from risk managers.

Findings

The Basel Accord is generally well‐received due its dual aims of improved capital administration and scientific risk management. Operational risk is a significant barrier to implementation, with a number of further issues only partially addressed (see below). Equally supported by both public and private sector banks the reasons for delay appear due to lack of technical expertise and the level of preparation. Results highlight credit risk, practical implementation issues (IT and HR), minimal capital requirements, data security and operational risk as issues of critical importance.

Originality/value

The originality of the contribution lies in the scientific treatment of novel primary data from risk managers tasked with implementation of the Basel Accord. Findings suggest several important practical implications discussed above.

Details

Journal of Financial Regulation and Compliance, vol. 20 no. 3
Type: Research Article
ISSN: 1358-1988

Keywords

To view the access options for this content please click here
Article

Elizabeth Webb

The purpose of this paper is to apply theoretical concepts of corporate and bank boards to the Boards of Directors at Federal Reserve Banks and at US Basel II A‐IRB…

Abstract

Purpose

The purpose of this paper is to apply theoretical concepts of corporate and bank boards to the Boards of Directors at Federal Reserve Banks and at US Basel II A‐IRB adopters. The Basel II Accord set to take effect in the USA in 2009 provides direction as to board oversight in Pillar 2. Since the Federal Reserve is one agency responsible for this document, the paper proposes to investigate the governance structure at US banks, presumably adopting (or opting in) the Basel II A‐IRB framework.

Design/methodology/approach

The board structure at Federal Reserve District Banks as of 2006 is examined. Also analyzed are the board structure, executive compensation, and ownership structure at the 22 banks identified as Basel II A‐IRB adopters. These results are then compared with current views and standards of “good governance” in the literature.

Findings

It was found that there is a fairly diverse representation on the board (in terms of female directors), a large proportion of directors are CEOs (generally of other banks), and that boards comprised a majority of outside directors. Several governance characteristics are contrary to “good governance” characteristics described in the literature. Further, banks adopting A‐IRB procedures in Basel II may need to improve governance structures to be in compliance with Pillar 2 of Basel II.

Practical implications

The Federal Reserve System, in an effort to increase board oversight as part of a risk management framework, should also consider its own board structure in light of current research on private‐sector boards. Both Federal Reserve District Boards and Basel II Boards should work towards exemplary corporate governance in light of their place in the US banking system.

Originality/value

The paper investigates the governance structures of banks.

Details

Journal of Financial Regulation and Compliance, vol. 15 no. 3
Type: Research Article
ISSN: 1358-1988

Keywords

To view the access options for this content please click here
Article

Christoph Pitschke and Stephan Bone‐Winkel

The New Basel Capital Accord (Basel II) was published in June 2004. This modification of the regulatory framework for banking institutions raises the question to what…

Abstract

Purpose

The New Basel Capital Accord (Basel II) was published in June 2004. This modification of the regulatory framework for banking institutions raises the question to what extent real estate financing will be impacted and how market participants can be adequately prepared. Aims to examine the impact of Basel II on the future pricing and availability of debt capital and on the cost of capital in real estate financing and to present possible reactions for real estate developers.

Design/methodology/approach

This research paper follows a deductive approach. First, the New Basel Capital Accord and the main features of commercial real estate financing are presented. On a normative level, the implications for developers are explained. Since no information regarding the behaviour of market participants in commercial real estate financing was available, the authors have ascertained the relevant questions within the framework of an empirical analysis. A total of 205 banking institutions were asked to fill out a survey pertaining to commercial real estate financing. The results of this survey are partly presented and interpreted.

Findings

The availability and the pricing of debt capital will be risk‐adjusted and will depend on the amount of regulatory equity banks will have to hold in reserve for a credit engagement. The cost of debt capital in real estate financing will rise due to systemic reasons of the New Basel Capital Accord. Banks are/will be very restrictive with regard to credit allowances. The use of the positive leverage effect will become more difficult. Structured financing, particularly the use of private equity, is the best way to fill a potential financing gap.

Originality/value

The paper is a timely investigation of a significant regulatory framework that is of world‐wide significance. The New Basel Capital Accord is introduced in its fundamental structure and the two relevant rating approaches are described and put into context. The paper reduces the complexity of the comprehensive and sophisticated Basel Capital Accord. Based on the facts that have been analysed, recommendations of how real estate developers can react to the changes in financing that lie ahead are given.

Details

Journal of Property Investment & Finance, vol. 24 no. 1
Type: Research Article
ISSN: 1463-578X

Keywords

To view the access options for this content please click here
Book part

Jin-Ping Lee

The new Basel Accord (known as Basel II) attempts to introduce more risk-sensitive capital requirements. We propose a multiperiod deposit insurance pricing model that…

Abstract

The new Basel Accord (known as Basel II) attempts to introduce more risk-sensitive capital requirements. We propose a multiperiod deposit insurance pricing model that incorporates specific regulatory capital requirements and the possibility of capital forbearance and moral hazard. We estimate the cost of deposit insurance under alternative regulation regimes based on the building block approach of the 1988 Basel Accord (known as Basel I) and internal model-based (IMB) capital regulation. In contrast to the building block of Basel I, Basel II's IMB capital regulation links more closely the capital requirement to a bank's actual risk. We develop a multiperiod pricing model while incorporating the effects of capital forbearance and moral hazard. The fairly-priced premium rates are computed by assuming that a bank's asset value follows a GARCH process. In contrast to previous studies based on the building block capital standard, we find that forbearance and the potential moral hazard behavior will not increase the cost of deposit insurance in the scheme of Basel II's IMB capital regulation.

Details

Research in Finance
Type: Book
ISBN: 978-1-84950-549-9

To view the access options for this content please click here
Article

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…

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

1 – 10 of over 1000