Abstract: The limitations inherent in the framework designed by the Basel Committee in 1988 and the biases originating from regulatory arbitrage operations led the supervisory authorities to start a review of such framework in 1999. While reforming the old Accord, the supervisors tried to give a more relevant role to the credit risk measurement models developed by banks, after testing their reliability and integrity. This choice was also caused by the increasing complexity of the financial portfolios traded by the largest banks, which makes it increasingly difficult to define a single prudential framework based on simple coefficients, suitable for all banks based on a one-size-fits-all rationale. This chapter offers an analysis of the contents, benefits, and limitations of the New Basel Capital Accord. An overview of the goals and general features of the reform put forward by the Basel Committee is presented and the new capital requirements outlined in pillar one of the new Accord, illustrating the new standard approach to credit risk measurement are examined. The chapter presents a detailed insight into the internal ratings-based approach and discusses the new role played by national supervisors, which, in compliance with pillar two of the New Accord, are required to strengthen their supervisory process. The market discipline envisaged in pillar three of the Accord and the benefits and limitations of the reform are discussed.
Publication Year: 2012
Publication Date: 2012-01-02
Language: en
Type: other
Indexed In: ['crossref']
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Cited By Count: 11
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