Resources for Basel II Capital Accord (Basel II)

Mitigating Risks: Banks Now Face New Lending/Capital Guidelines

www.costar.com

U.S. federal banking regulators approved final rules this week for the implementation of new risk-based capital requirements for U.S. banks. Referred to as Basel II, similar guidelines are being adopted around the world to confront dissimilarities in financial lending practices globally.

The guidelines have been in the works for a couple of years and cover both credit risks and operational risks. The goal is to get banks to make better decisions about extending credit, mitigating risks, and determining overall capital needs. Banks had already begun adapting some of the changes.

Under Basel II, risk-based capital requirements will vary on the basis of a banking organization's actual risk profile and experience. Banking organizations with a higher risk profile will have higher regulatory capital requirements than those with a lower risk profile.

How effective the changes will be isn't clear. According to BearingPoint Inc., a financial institutions technology and management consulting firm, Basel II provisions actually contributed to and possibly exacerbated the current strain on the financial markets.

View the Resource

Share or bookmarklet this web page at: