Resources for Basel II Capital Accord (Basel II)

Basel II critical, says US Federal Reserve

www.chasecooper.com

The US Federal Reserve, one of the US's four national regulators, came out strongly in support of Basel II in a July 12th presentation by Randall S Kroszner, Member of the Board of Governors at the Federal Reserve, to the New York Bankers Association Annual Washington Visit to Washington DC on 12 July 2007.

Kroszner commented that the existing Basel I rules were flawed for large, complex US banks: its simple risk-bucketing approach creates perverse incentives for risk-taking – for example regulatory capital being the same for all unsecured corporate loans and bonds regardless of actual risk, all unsecured consumer credit card exposures being treated the same, and no differentiation in mortgages – with the result that banks were shedding low-risk exposures and acquiring relatively high-risk exposures within each of these asset classes.

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