Resources for Basel II Capital Accord (Basel II)

Doubts cast over Basel II ‘safety net’

www.business24-7.ae

Some of the world’s top banking brains spent nearly a decade designing new rules to help global financial institutions stay out of trouble. What if much of their thinking was wrong?

A version of their new guidelines – known as Basel II after the Swiss city where they were crafted – was about to be phased in next month in the US. Their primary tenet: banks should be given more freedom to decide for themselves how much financial risk they should take on, since they are in a better position than regulators to make that call.

But the global financial turmoil triggered by the popping of the American housing bubble is upending fundamental assumptions about risk. Institutions worldwide have badly misjudged the safety of investments ranging from sub-prime mortgages to complex structured financial securities. This is especially true in Europe, where many banks are operating under the new Basel II risk standards.

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