Banking

Read e-book online From Basel 1 to Basel 3: The Integration of State-of-the-Art PDF

By Laurent Balthazar

ISBN-10: 0230501176

ISBN-13: 9780230501171

ISBN-10: 1349525251

ISBN-13: 9781349525256

ISBN-10: 1881881881

ISBN-13: 9781881881889

Show description

Read Online or Download From Basel 1 to Basel 3: The Integration of State-of-the-Art Risk Modeling in Banking Regulation PDF

Best banking books

Read e-book online Financial Intermediation and Deregulation: A Critical PDF

The ebook makes an attempt to provide a entire description and testable concept of the complex, yet now not unintelligible procedure of bank-firm relationships within the dynamic atmosphere of a steadily deregulated monetary industry. It presents either idea and empirical proof that shut bank-firm relationships result in a reduce fraction of financial institution finance.

Additional info for From Basel 1 to Basel 3: The Integration of State-of-the-Art Risk Modeling in Banking Regulation

Example text

The bank lost 10 billion USD in CDs in two months. This posed an important systemic threat as 2,299 other banks had deposits at Continental (of which 179 might have followed it into bankruptcy if it had been declared insolvent following a FDIC study). 3 billion USD credit was granted by a group of twenty-four major US banks, and top management was laid off and replaced by people chosen by the government. 1 billion USD, not a lot considering the bank’s size, thanks to the effectiveness of the way the regulators had handled the case.

The main principle of the solvency rule was to assign to both on-balance and off-balance sheet items a weight that was a function of their estimated risk level, and to require a capital level equivalent to 8 percent of those weighted assets. Thus, the main innovations of this ratio compared to the others that had been tested earlier was that it differentiated the assets by function of their assumed risk and also incorporated requirements for off-balance sheet items that had grown significantly in the 1980s with the development of derivatives instruments.

That is why, backstage, people are already speaking of a “Basel 3 Accord” that would fully recognize internal credit risk models. Numerous contacts had to be created between regulators and the sector through joint forums and consultations to set up Basel 2; this built precious communications structures that are expected to be maintained even after Basel 2’s implementation date to keep working on what will be the regulation for the 2010s. This evolution is even highlighted in the final text itself: The Committee understands that the IRB [Internal Rating-Based] approach represents a point on the continuum between purely regulatory measures of credit risk and an approach that builds more fully on internal credit risk models.

Download PDF sample

From Basel 1 to Basel 3: The Integration of State-of-the-Art Risk Modeling in Banking Regulation by Laurent Balthazar


by Richard
4.1

Rated 4.23 of 5 – based on 22 votes