BASEL ACCORD 1 & 2 -AS WE HAVE BEEN TELLING YOU ALL FOR 12 MONTHS.

BASEL ACCORD 1 & 2 -AS WE HAVE BEEN TELLING YOU ALL FOR 12 MONTHS.

Devaluation of the Pound???Coming....

WE TOLD YOU ALL IN THE UK -AS WELL AS THE REST OF THE

WORLD WHATS HAPPENING-6-12 MONTHS AGO

.......AND STILL YOU ARE SILENT.

Top banks face $100 billion Basel shortfall: report

• Companies:

  • Barclays PLC

A man walks by Barclays Capital offices in New York June 8, 2009. REUTERS/Shannon Stapleton

Related Quotes

Symbol	Price	Change
BARC.L	270.00	-27.00

On Sunday November 21, 2010, 8:48 pm EST

LONDON (Reuters) - The new Basel III banking rules will leave the biggest U.S. banks short of between $100 billion and $150 billion in equity capital, with 90 per cent of the shortfall concentrated in the top six banks, the Financial Times said, citing research from Barclays Capital.

The newspaper said the study by the investment banking arm of Barclays Plc (LSE:BARC.L - News) assumes the banks will need to hold top quality capital equal to 8 percent of their total assets -- a one point cushion against falling below the effective global minimum of 7 percent set in September by the Basel Committee on Banking Supervision.

The regulations mean banks may need to increase their capital through retained earnings or issuing equity or they can cut their risk-weighted assets by selling off assets and cutting back riskier business.

"These shortfalls are entirely manageable ... The more difficult question is what affect the new rules will have on the cost and availability of credit and bank profitability," the FT quoted Tom McGuire, head of the Capital Advisory Group at BarCap, as saying.

McGuire estimates that U.S. banks can cut their equity needs by $10 billion with each $125 billion reduction in risk-weighted assets, the FT said.

Barclays Capital could not be reached for comment.

Saturday, 18 April 2009

Basel Accord 1 & 2 -AS WE HAVE BEEN TELLING YOU ALL FOR 12 MONTHS.

The Tower Of Basel - Secretive
Plans For Issuing A
Global Currency
Do we really want the Bank for International
Settlements (BIS) issuing our global currency?
By Ellen Brown
4-17-9

In an April 7 article in The London Telegraph titled "The G20 Moves the World a Step Closer to a Global Currency," Ambrose Evans-Pritchard wrote: "A single clause in Point 19 of the communiqué issued by the G20 leaders amounts to revolution in the global financial order. "We have agreed to support a general SDR allocation which will inject $250bn (£170bn) into the world economy and increase global liquidity,' it said. SDRs are Special Drawing Rights, a synthetic paper currency issued by the International Monetary Fund that has lain dormant for half a century. "In effect, the G20 leaders have activated the IMF's power to create money and begin global 'quantitative easing'. In doing so, they are putting a de facto world currency into play. It is outside the control of any sovereign body. Conspiracy theorists will love it." Indeed they will. The article is subtitled, "The world is a step closer to a global currency, backed by a global central bank, running monetary policy for all humanity." Which naturally raises the question, who or what will serve as this global central bank, cloaked with the power to issue the global currency and police monetary policy for all humanity? When the world's central bankers met in Washington last September, they discussed what body might be in a position to serve in that awesome and fearful role. A former governor of the Bank of England stated: "[T]he answer might already be staring us in the face, in the form of the Bank for International Settlements (BIS).... The IMF tends to couch its warnings about economic problems in very diplomatic language, but the BIS is more independent and much better placed to deal with this if it is given the power to do so."1 And if that vision doesn't alarm conspiracy theorists, it should. The BIS has been called "the most exclusive, secretive, and powerful supranational club in the world." Founded in Basel, Switzerland, in 1930, it has been scandal-ridden from its beginnings. According to Charles Higham in his book Trading with the Enemy, by the late 1930s the BIS had assumed an openly pro-Nazi bias. This was corroborated years later in a BBC Timewatch film titled "Banking with Hitler," broadcast in 1998.2 In 1944, the American government backed a resolution at the Bretton-Woods Conference calling for the liquidation of the BIS, following Czech accusations that it was laundering gold stolen by the Nazis from occupied Europe; but the central bankers succeeded in quietly snuffing out the American resolution.3 Modest beginnings, BIS Office, Hotel Savoy-Univers, Basel First Annual General Meeting, 1931 In Tragedy and Hope: A History of the World in Our Time (1966), Dr. Carroll Quigley revealed the key role played in global finance by the BIS behind the scenes. Dr. Quigley was Professor of History at Georgetown University, where he was President Bill Clinton's mentor. He was also an insider, groomed by the powerful clique he called "the international bankers." His credibility is heightened by the fact that he actually espoused their goals. He wrote: "I know of the operations of this network because I have studied it for twenty years and was permitted for two years, in the early 1960's, to examine its papers and secret records. I have no aversion to it or to most of its aims and have, for much of my life, been close to it and to many of its instruments. ... [I]n general my chief difference of opinion is that it wishes to remain unknown, and I believe its role in history is significant enough to be known." Quigley wrote of this international banking network: "[T]he powers of financial capitalism had another far-reaching aim, nothing less than to create a world system of financial control in private hands able to dominate the political system of each country and the economy of the world as a whole. This system was to be controlled in a feudalist fashion by the central banks of the world acting in concert, by secret agreements arrived at in frequent private meetings and conferences. The apex of the system was to be the Bank for International Settlements in Basel, Switzerland, a private bank owned and controlled by the world's central banks which were themselves private corporations." The key to their success, said Quigley, was that the international bankers would control and manipulate the money system of a nation while letting it appear to be controlled by the government. The statement echoed an often-quoted one made by the German patriarch of what would become the most powerful banking dynasty in the world. Mayer Amschel Bauer Rothschild famously said in 1791: "Allow me to issue and control a nation's currency, and I care not who makes its laws." Mayer's five sons were sent to the major capitals of Europe London, Paris, Vienna, Berlin and Naples with the mission of establishing a banking system that would be outside government control. The economic and political systems of nations would be controlled not by citizens but by bankers, for the benefit of bankers. Eventually, a privately-owned "central bank" was established in nearly every country; and this central banking system has now gained control over the economies of the world. Central banks have the authority to print money in their respective countries, and it is from these banks that governments must borrow money to pay their debts and fund their operations. The result is a global economy in which not only industry but government itself runs on "credit" (or debt) created by a banking monopoly headed by a network of private central banks; and at the top of this network is the BIS, the "central bank of central banks" in Basel. Behind the Curtain For many years the BIS kept a very low profile, operating behind the scenes in an abandoned hotel. It was here that decisions were reached to devalue or defend currencies, fix the price of gold, regulate offshore banking, and raise or lower short-term interest rates. In 1977, however, the BIS gave up its anonymity in exchange for more efficient headquarters. The new building has been described as "an eighteen story-high circular skyscraper that rises above the medieval city like some misplaced nuclear reactor." It quickly became known as the "Tower of Basel." Today the BIS has governmental immunity, pays no taxes, and has its own private police force.4 It is, as Mayer Rothschild envisioned, above the law. The BIS is now composed of 55 member nations, but the club that meets regularly in Basel is a much smaller group; and even within it, there is a hierarchy. In a 1983 article in Harper's Magazine called "Ruling the World of Money," Edward Jay Epstein wrote that where the real business gets done is in "a sort of inner club made up of the half dozen or so powerful central bankers who find themselves more or less in the same monetary boat" those from Germany, the United States, Switzerland, Italy, Japan and England. Epstein said: "The prime value, which also seems to demarcate the inner club from the rest of the BIS members, is the firm belief that central banks should act independently of their home governments... . A second and closely related belief of the inner club is that politicians should not be trusted to decide the fate of the international monetary system." In 1974, the Basel Committee on Banking Supervision was created by the central bank Governors of the Group of Ten nations (now expanded to twenty). The BIS provides the twelve-member Secretariat for the Committee. The Committee, in turn, sets the rules for banking globally, including capital requirements and reserve controls. In a 2003 article titled "The Bank for International Settlements Calls for Global Currency," Joan Veon wrote: "The BIS is where all of the world's central banks meet to analyze the global economy and determine what course of action they will take next to put more money in their pockets, since they control the amount of money in circulation and how much interest they are going to charge governments and banks for borrowing from them... . "When you understand that the BIS pulls the strings of the world's monetary system, you then understand that they have the ability to create a financial boom or bust in a country. If that country is not doing what the money lenders want, then all they have to do is sell its currency."5 The Controversial Basel Accords The power of the BIS to make or break economies was demonstrated in 1988, when it issued a Basel Accord raising bank capital requirements from 6% to 8%. By then, Japan had emerged as the world's largest creditor; but Japan's banks were less well capitalized than other major international banks. Raising the capital requirement forced them to cut back on lending, creating a recession in Japan like that suffered in the U.S. today. Property prices fell and loans went into default as the security for them shriveled up. A downward spiral followed, ending with the total bankruptcy of the banks, which had to be nationalized although that word was not used, in order to avoid criticism.6 Among other collateral damage produced by the Basel Accords was a spate of suicides among Indian farmers unable to get loans. The BIS capital adequacy standards required loans to private borrowers to be "risk-weighted," with the degree of risk determined by private rating agencies; and farmers and small business owners could not afford the agencies' fees. Banks therefore assigned 100 percent risk to the loans, and then resisted extending credit to these "high-risk" borrowers because more capital was required to cover the loans. When the conscience of the nation was aroused by the Indian suicides, the government, lamenting the neglect of farmers by commercial banks, established a policy of ending the "financial exclusion" of the weak; but this step had little real effect on lending practices, due largely to the strictures imposed by the BIS from abroad.7 Similar complaints have come from Korea. An article in the December 12, 2008 Korea Times titled "BIS Calls Trigger Vicious Cycle" described how Korean entrepreneurs with good collateral cannot get operational loans from Korean banks, at a time when the economic downturn requires increased investment and easier credit: "'The Bank of Korea has provided more than 35 trillion won to banks since September when the global financial crisis went full throttle,' said a Seoul analyst, who declined to be named. 'But the effect is not seen at all with the banks keeping the liquidity in their safes. They simply don't lend and one of the biggest reasons is to keep the BIS ratio high enough to survive,' he said... . "Chang Ha-joon, an economics professor at Cambridge University, concurs with the analyst. 'What banks do for their own interests, or to improve the BIS ratio, is against the interests of the whole society. This is a bad idea,' Chang said in a recent telephone interview with Korea Times." In a May 2002 article in The Asia Times titled "Global Economy: The BIS vs. National Banks," economist Henry C K Liu observed that the Basel Accords have forced national banking systems "to march to the same tune, designed to serve the needs of highly sophisticated global financial markets, regardless of the developmental needs of their national economies." He wrote: "[N]ational banking systems are suddenly thrown into the rigid arms of the Basel Capital Accord sponsored by the Bank of International Settlement (BIS), or to face the penalty of usurious risk premium in securing international interbank loans... . National policies suddenly are subjected to profit incentives of private financial institutions, all members of a hierarchical system controlled and directed from the money center banks in New York. The result is to force national banking systems to privatize ... . "BIS regulations serve only the single purpose of strengthening the international private banking system, even at the peril of national economies... . The IMF and the international banks regulated by the BIS are a team: the international banks lend recklessly to borrowers in emerging economies to create a foreign currency debt crisis, the IMF arrives as a carrier of monetary virus in the name of sound monetary policy, then the international banks come as vulture investors in the name of financial rescue to acquire national banks deemed capital inadequate and insolvent by the BIS." Ironically, noted Liu, developing countries with their own natural resources did not actually need the foreign investment that had trapped them in debt to outsiders: "Applying the State Theory of Money [which assumes that a sovereign nation has the power to issue its own money], any government can fund with its own currency all its domestic developmental needs to maintain full employment without inflation." When governments fell into the trap of accepting loans in foreign currencies, however, they became "debtor nations" subject to IMF and BIS regulation. They were forced to divert their production to exports, just to earn the foreign currency necessary to pay the interest on their loans. National banks deemed "capital inadequate" had to deal with strictures comparable to the "conditionalities" imposed by the IMF on debtor nations: "escalating capital requirement, loan writeoffs and liquidation, and restructuring through selloffs, layoffs, downsizing, cost-cutting and freeze on capital spending." Liu wrote: "Reversing the logic that a sound banking system should lead to full employment and developmental growth, BIS regulations demand high unemployment and developmental degradation in national economies as the fair price for a sound global private banking system." The Last Domino to Fall While banks in developing nations were being penalized for falling short of the BIS capital requirements, large international banks managed to escape the rules, although they actually carried enormous risk because of their derivative exposure. The mega-banks succeeded in avoiding the Basel rules by separating the "risk" of default out from the loans and selling it off to investors, using a form of derivative known as "credit default swaps." BIS Tower Building, Basel Botta 1 Building, Basel However, it was not in the game plan that U.S. banks should escape the BIS net. When they managed to sidestep the first Basel Accord, a second set of rules was imposed known as Basel II. The new rules were established in 2004, but they were not levied on U.S. banks until November 2007, the month after the Dow passed 14,000 to reach its all-time high. The economy was all downhill from there. Basel II had the same effect on U.S. banks that Basel I had on Japanese banks: they have been struggling ever since to survive.8 Basel II requires banks to adjust the value of their marketable securities to the "market price" of the security, a rule called "mark to market."9 The rule has theoretical merit, but the problem is timing: it was imposed ex post facto, after the banks already had the hard-to-market assets on their books. Lenders that had been considered sufficiently well capitalized to make new loans suddenly found they were insolvent. At least, they would have been insolvent if they had tried to sell their assets, an assumption required by the new rule. Financial analyst John Berlau complained: "The crisis is often called a 'market failure,' and the term 'mark-to-market' seems to reinforce that. But the mark-to-market rules are profoundly anti-market and hinder the free-market function of price discovery... . In this case, the accounting rules fail to allow the market players to hold on to an asset if they don't like what the market is currently fetching, an important market action that affects price discovery in areas from agriculture to antiques."10 Imposing the mark-to-market rule on U.S. banks caused an instant credit freeze, which proceeded to take down the economies not only of the U.S. but of countries worldwide. In early April 2009, the mark-to-market rule was finally softened by the U.S. Financial Accounting Standards Board (FASB); but critics said the modification did not go far enough, and it was done in response to pressure from politicians and bankers, not out of any fundamental change of heart or policies by the BIS. And that is where the conspiracy theorists come in. Why did the BIS not retract or at least modify Basel II after seeing the devastation it had caused? Why did it sit idly by as the global economy came crashing down? Was the goal to create so much economic havoc that the world would rush with relief into the waiting arms of the BIS with its privately-created global currency? The plot thickens ... _________ Ellen Brown developed her research skills as an attorney practicing civil litigation in Los Angeles. In Web of Debt, her latest book, she turns those skills to an analysis of the Federal Reserve and "the money trust." She shows how this private cartel has usurped the power to create money from the people themselves, and how we the people can get it back. Her earlier books focused on the pharmaceutical cartel that gets its power from "the money trust." Her eleven books include Forbidden Medicine, Nature's Pharmacy (co-authored with Dr. Lynne Walker), and The Key to Ultimate Health (co-authored with Dr. Richard Hansen). Her websites are www.webofdebt.com and www.ellenbrown.com. NOTES 1. Andrew Marshall, "The Financial New World Order: Towards a Global Currency and World Government," Global Research (April 6, 2009). 2. Alfred Mendez, "The Network," The World Central Bank: The Bank for International Settlements, http://copy_bilderberg.tripod.com/bis.htm. 3. "BIS Bank of International Settlement: The Mother of All Central Banks," hubpages.com (2009). 4. Ibid. 5. Joan Veon, "The Bank for International Settlements Calls for Global Currency," News with Views (August 26, 2003). 6. Peter Myers, "The 1988 Basle Accord Destroyer of Japan's Finance System," http://www.mailstar.net/basle.html (updated September 9, 2008). 7. Nirmal Chandra, "Is Inclusive Growth Feasible in Neoliberal India?", networkideas.org (September 2008). 8. Bruce Wiseman, "The Financial Crisis: A look Behind the Wizard's Curtain," Canada Free Press (March 19, 2009). 9. See Ellen Brown, "Credit Where Credit Is Due," webofdebt.com/articles/creditcrunch.php (January 11, 2009). 10. John Berlau, "The International Mark-to-market Contagion," OpenMarket.org (October 10, 2008). Thursday, 23 April 2009 BASEL ACCORD 1 & 2 -AS WE HAVE BEEN TELLING YOU ALL FOR 12 MONTHS. Devaluation of the Pound???Coming.... WE TOLD YOU ALL IN THE UK -AS WELL AS THE REST OF THE WORLD WHATS HAPPENING-6-12 MONTHS AGO .......AND STILL YOU ARE SILENT. Thursday, 11 December 2008 Wait till after April 2009 when the I.F.R.S. comes into effect for BACK ON BALANCE SHEETS FOR NATION STATES...(CAREFUL GORDON BROWN..PFIs'; pensions;) Basel II Accord.conflicts caused by the Basel system of banking regulations, which determine how much capital banks must raise. Wait till after April 2009 when the I.F.R.S. comes into effect for BACK ON BALANCE SHEETS FOR NATION STATES... (CAREFUL GORDON BROWN..PFIs'; pensions;) Then you'll see Devaluation....Mark it; Mark it; Mark it. Prof. Peter Spencer, of the Ernst & Young Item Club, regarded as "one of Britain's leading economists". It was then that a report of his views said:…conflicts caused by the Basel system of banking regulations, which determine how much capital banks must to keep their books in order, are the root cause of the crunch and were serving to worsen the City's plight. The regulations meant that banks forced to take off-balance sheet assets from troubled structured investment vehicles on to their books had little choice but either to raise money from abroad or cut back dramatically on their spending, he said. He warned that, if London's money markets remained frozen and the authorities retain the strict Basel regulations, the full scale of the eventual credit crunch and economic slump could be "disastrous". Basel II Accord From Wikipedia, the free encyclopedia (Redirected from Basel II) Basel II Bank for International Settlements Basel Accord - Basel I Basel II Background Banking Monetary policy - Central bank Risk - Risk management Regulatory capital Tier 1 - Tier 2 Pillar 1: Regulatory Capital Credit risk Standardized - F-IRB - A-IRB PD - LGD - EAD Operational risk Basic - Standardized - AMA Market risk Duration - Value at risk Pillar 2: Supervisory Review Economic capital Liquidity risk - Legal risk Pillar 3: Market Disclosure Disclosure Business and Economics Portal Basel II is the second of the Basel Accords, which are recommendations on banking laws and regulations issued by the Basel Committee on Banking Supervision. The purpose of Basel II, which was initially published in June 2004, is to create an international standard that banking regulators can use when creating regulations about how much capital banks need to put aside to guard against the types of financial and operational risks banks face. Advocates of Basel II believe that such an international standard can help protect the international financial system from the types of problems that might arise should a major bank or a series of banks collapse. In practice, Basel II attempts to accomplish this by setting up rigorous risk and capital management requirements designed to ensure that a bank holds capital reserves appropriate to the risk the bank exposes itself to through its lending and investment practices. Generally speaking, these rules mean that the greater risk to which the bank is exposed, the greater the amount of capital the bank needs to hold to safeguard its solvency and overall economic stability. The final version aims at: Ensuring that capital allocation is more risk sensitive; Separating operational risk from credit risk, and quantifying both; Attempting to align economic and regulatory capital more closely to reduce the scope forregulatory arbitrage. While the final accord has largely addressed the regulatory arbitrage issue, there are still areas where regulatory capital requirements will diverge from the economic. Basel II has largely left unchanged the question of how to actually define bank capital, which diverges from accounting equity in important respects. The Basel I definition, as modified up to the present, remains in place. Contents [hide] 1 The Accord in operation 1.1 The first pillar 1.2 The second pillar 1.3 The third pillar 2 September 2005 update 3 November 2005 update 4 July 2006 update 5 November 2007 update 6 July 16, 2008 update 7 Basel II and the regulators 7.1 Implementation progress 8 See also 9 References 10 External links [edit]The Accord in operation Basel II uses a "three pillars" concept – (1) minimum capital requirements (addressing risk), (2) supervisory review and (3) market discipline – to promote greater stability in the financial system. The Basel I accord dealt with only parts of each of these pillars. For example: with respect to the first Basel II pillar, only one risk, credit risk, was dealt with in a simple manner while market risk was an afterthought; operational risk was not dealt with at all. [edit]The first pillar The first pillar deals with maintenance of regulatory capital calculated for three major components of risk that a bank faces: credit risk,operational risk and market risk. Other risks are not considered fully quantifiable at this stage. The credit risk component can be calculated in three different ways of varying degree of sophistication, namely standardized approach,Foundation IRB and Advanced IRB. IRB stands for "Internal Rating-Based Approach". For operational risk, there are three different approaches - basic indicator approach or BIA, standardized approach or TSA, and advanced measurement approach or AMA. For market risk the preferred approach is VaR (value at risk). [edit]The second pillar The second pillar deals with the regulatory response to the first pillar, giving regulators much improved 'tools' over those available to them under Basel I. It also provides a framework for dealing with all the other risks a bank may face, such as systemic risk, pension risk,concentration risk, strategic risk, reputation risk, liquidity risk and legal risk, which the accord combines under the title of residual risk.It gives bank a power to review their risk management system. [edit]The third pillar The third pillar greatly increases the disclosures that the bank must make. This is designed to allow the market to have a better picture of the overall risk position of the bank and to allow the counterparties of the bank to price and deal appropriately. [edit]September 2005 update On September 30, 2005, the four US Federal banking agencies (the Office of the Comptroller of the Currency, the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, and the Office of Thrift Supervision) announced their revised plans for the U.S. implementation of the Basel II accord. This delays implementation of the accord for US banks by 12 months [1]. The Federal Reserve System is a private banking corporation and not part of the Federal government. [edit]November 2005 update On November 15, 2005, the committee released a revised version of the Accord, incorporating changes to the calculations for market risk and the treatment of double default effects. These changes had been flagged well in advance, as part of a paper released in July 2005. [2] [edit]July 2006 update On July 4, 2006, the committee released a comprehensive version of the Accord, incorporating the June 2004 Basel II Framework, the elements of the 1988 Accord that were not revised during the Basel II process, the 1996 Amendment to the Capital Accord to Incorporate Market Risks, and the November 2005 paper on Basel II: International Convergence of Capital Measurement and Capital Standards: A Revised Framework. No new elements have been introduced in this compilation. This version is now the current version. [3] [edit]November 2007 update On November 1, 2007, the Office of the Comptroller of the Currency (U.S. Department of the Treasury) approved a final rule implementing the advanced approaches of the Basel II Capital Accord. This rule establishes regulatory and supervisory expectations for credit risk, through the Internal Ratings Based Approach (IRB), and operational risk, through the Advanced Measurement Approach (AMA), and articulates enhanced standards for the supervisory review of capital adequacy and public disclosures for the largest U.S. banks [4]. [edit]July 16, 2008 update On July 16, 2008 The federal banking and thrift agencies ( The Board of Governors of the Federal Reserve System; the Federal Deposit Insurance Corporation; the Office of the Comptroller of the Currency, and; the Office of Thrift Supervision) issued a final guidance outlining the supervisory review process for the banking institutions that are implementing the new advanced capital adequacy framework (known as Basel II). The final guidance, relating to the supervisory review, is aimed at helping banking institutions meet certain qualification requirements in the advanced approaches rule, which took effect on April 1, 2008. http://www.occ.gov/ftp/release/2008-81a.pdf [edit]Basel II and the regulators One of the most difficult aspects of implementing an international agreement is the need to accommodate differing cultures, varying structural models, and the complexities of public policy and existing regulation. Banks’ senior management will determine corporate strategy, as well as the country in which to base a particular type of business, based in part on how Basel II is ultimately interpreted by various countries' legislatures and regulators. To assist banks operating with multiple reporting requirements for different regulators according to geographic location, there are several software applications available. These include capital calculation engines and extend to automated reporting solutions which include the reports required under COREP/FINREP. [edit]Implementation progress Regulators in most jurisdictions around the world plan to implement the new Accord, but with widely varying timelines and use of the varying methodologies being restricted. The United States of America's various regulators have agreed on a final approach - see [5] for the Notice of Proposed Rulemaking. They have required the Internal Ratings-Based approach for the largest banks, and the standardized approach will not be available to anyone. In India, RBI has implemented the Basel II norms. In response to a questionnaire released by the Financial Stability Institute (FSI)[6], 95 national regulators indicated they were to implement Basel II, in some form or another, by 2015. The European Union has already implemented the Accord via the EU Capital Requirements Directives and many European banks already report their capital adequacy ratios according to the new system. All the credit institutions will adopt it by 2008. [edit]See also http://www.occ.gov Office of the Comptroller of the Currency Operational risk Operational risk management Risk Capital adequacy Solvency II Procyclical [edit]References http://www.occ.gov/ftp/release/2008-81a.pdf http://www.occ.gov/ftp/release/2007-123.htm OCC Approves Basel II Capital Rule for U.S. Banks http://www.bis.org/publ/bcbsca.htm Basel II: Revised international capital framework (BCBS) http://www.bis.org/publ/bcbs107.htm Basel II: International Convergence of Capital Measurement and Capital Standards: a Revised Framework (BCBS) http://www.bis.org/publ/bcbs118.htm Basel II: International Convergence of Capital Measurement and Capital Standards: a Revised Framework (BCBS) (November 2005 Revision) http://www.bis.org/publ/bcbs128.pdf Basel II: International Convergence of Capital Measurement and Capital Standards: a Revised Framework, Comprehensive Version (BCBS) (June 2006 Revision) http://www.basel-ii-association.com Association of Basel II Compliance Professionals http://www.globalriskregulator.com Basel news and resources http://www.baselcert.org Basel II Certification Institute: Certification for Basel II Accord http://www.basel-ii-training.com: Basel II Training: Impact on IT and Information Security http://www.basel-ii-risk.com: Basel II information and chatroom http://www.Basel-II.info Basel II: Portal site with studies and latest news (German language) Basel 2 skilled work of Michael Winters (German language) http://www.basel2.hk Basel II Portal for Asia-Pacific Region Impact of Basel II on IT investments Global Data and Risk Management Survey 2005 http://www.math.ethz.ch/~baltes/ftp/Responsev3.pdf An academic response to Basel II http://www.math.ethz.ch/~delbaen/ftp/preprints/CoherentMF.pdf Coherent measures of risk. a widely quoted paper http://www.bos.frb.org/economic/wp/wp2006/wp0613.htm FRB Boston paper on measurement of operational risk. Daníelsson, Jón. "The Emperor Has No Clothes: Limits to Risk Modelling." Journal of Banking and Finance, 2002, 26, pp. 1273-96. http://www.basel-ii-accord.com: The text sections of the accord in an easy to read format. http://ozrisk.net: A blog covering the Australian Basel II implementation process http://www.info.gov.hk/hkma/eng/bank/spma/attach/CA-G-4.pdf Validating Risk Rating Systems under the IRB Approaches, HKMA http://www.info.gov.hk/hkma/eng/basel2/index.htm Return of capital adequacy ratio (final version) - Completion instructions, HKMA http://www.info.gov.hk/hkma/eng/bank/retform/pdf/MA(BS)3.pdf Return Templates of capital Adequacy Ratio, HKMA http://www.osfi-bsif.gc.ca/app/DocRepository/1/eng/guidelines/capital/guidelines/car_a1_e.pdf Canada Capital Adequacy Requirements,OSFI http://finance.groups.yahoo.com/group/Basel_Accords a discussion group [edit]External links Articles on Risk Management & Modelling http://bis2information.org: Practical articles, on BIS2 and risk modelling, submitted by professionals to help create an industry standard. Approaches and Challenges in implementation of Basel II Categories: Banking | Financial regulation ============================= Wednesday, October 01, 2008 The smoking gun By general accord, much of the current financial crisis arises from "regulatory failure", something to which numerous references have been made, not least by the shadow chancellor over the weekend, when he complained that "Gordon Brown's regulatory mechanism has comprehensively failed". Osborne has though been reticent about identifying the specific failure and it took his boss David Cameronyesterday to hint at the specifics. There is a need, he said, "to break the self-fulfilling cycle that is reducing banks' ability to lend." The problem is this, he added: When the value of financial assets falls, a new international accounting regulation called "marking to market" automatically downgrades the value of banks. They are less able to raise the money to carry on their business. That in turn causes further falls in the value of financial assets. And this is making the financial crisis worse than in previous downturns. Cameron himself, however, blurs over the precise cause of this problem and it took The Guardian to add more detail. The paper tells us: A European Union directive passed in 2001 and adopted as a new accounting standard in the UK in 2006 dictates that banks have to value their assets on a daily basis. To do this they must base their calculations on the market value of each asset if it were liquidated that day. The problem with this is that as share values tumble in response to the credit crisis, millions of pounds are wiped off bank balance sheets causing a spiral of decline in asset values. Actually, The Guardian has got it wrong. The "European Union Directive" in question is Directive 2006/49/EC of 14 June 2006 "on the capital adequacy of investment firms and credit institutions". Its short title is the Capital Adequacy Directive. This must be read in conjunction with Directive 2006/48/EC, the pair of Directives together implmenting the agreement. That it is an EU directive, though, does not tell the whole story for it is this directive which implements crucial parts of the now notorious Basel II agreement. It is that agreement that which is the heart of the current problems which the banks are experiencing. That Basel II is the problem – the "smoking gun", so to speak - has been widely promulgated for some time by acknowledged experts, most notablylast December by Prof. Peter Spencer, of the Ernst & Young Item Club, regarded as "one of Britain's leading economists". It was then that a report of his views said: …conflicts caused by the Basel system of banking regulations, which determine how much capital banks must to keep their books in order, are the root cause of the crunch and were serving to worsen the City's plight. The regulations meant that banks forced to take off-balance sheet assets from troubled structured investment vehicles on to their books had little choice but either to raise money from abroad or cut back dramatically on their spending, he said. He warned that, if London's money markets remained frozen and the authorities retain the strict Basel regulations, the full scale of the eventual credit crunch and economic slump could be "disastrous". Dismissing the assumption that banks are not lending to each other on the money markets because they lack confidence in each others' potential solvency, he argued that they were, in practice, prevented from lending the cash at all because it could leave their balance sheets falling foul of the Basel regulations. "If these funding routes are not reopened it will have massive consequences for the economy as a whole," he said. "It will make 1929 look like a walk in the park." He dismissed as "window dressing" the move announced by central banks around the world this week to pump extra money into the money markets and increase the type of collateral they will accept in return, in an effort to get them running again. "This won't get to the core of the problem: the fundamental lack of collateral. As these problems drag on, the consequences for the macro-economy of not relaxing [the Basel regulations] are unthinkable." Not only do the regulations, which stipulate that banks must have a minimum of 8pc capital among their liabilities, deter banks from lending to each other, they will also limit the amount they can lend to households and businesses. This could escalate the anticipated economic downturn next year significantly, he said. This theme was picked up by Ambrose Evans-Pritchard a few days later, who cited Spencer saying that, "the global authorities have just weeks to get this right, or trigger disaster." The Spencer analysis was then essentially repeated at the end of January by another acknowledged expert, Prof. Tim Congdon. In the context of the Northern Rock affair, Congdon asserted that, "the Basel rules have failed", then arguing that "the scientific precision of the Basel rules was shown to be hocus-pocus." Banks, he wrote: …did not know the true state of each other's capital and, hence, their ability to repay loans. Inter-bank markets seized up. If one bank - such as Northern Rock - ran out of cash, it had only one place to go, its central bank. But the assumption that the central bank would, quickly and reliably, extend a lender-of-last-resort loan to a solvent, but illiquid bank - an assumption written into banking textbooks for decades - was invalidated by the Bank of England's reluctance to lend in crisis circumstances last August. So it was yesterday that Cameron stood up in front of the Conservative Party conference and declared that "…our regulatory authorities, together with the European regulators, need to address this difficult issue." He did not name the Basel II agreement and, crucially, neither did he identify the more immediate cause of the problem, the EU Capital Adequacy Directive. Had he done so, of course, there would have been uproar, and the EU would have been catapulted to the top of the political agenda, which is the last thing Cameron would have wanted. And it is the Directive which is now the problem. The reason for this is that, although the original Basel II agreement was produced in June 2004 with the assent of the British authorities – which had pushed hard to their adoption – the sponsoring organisation, the Basel Committee on Banking Supervisiondoes not produce legislation. Instead, it "formulates broad supervisory standards and guidelines" and recommends statements of best practice in banking supervision "in the expectation that member authorities and other nations' authorities will take steps to implement them through their own national systems, whether in statutory form or otherwise." Had the UK been an independent country in 2004 and subsequently, the government would have implemented the Basel II agreement into UK legislation, either through an Act of Parliament or through Regulations (SIs) – or a combination of both. The trouble was that, not only was the UK a member of the European Union, financial services regulation was (and is) a "competence" of the EU and the UK had thereby ceded authority to legislate in this area. Thus, instead of being adopted into British law directly, it was adopted via an EU Directive. That, at the time, did not present the government with a problem as it has been an enthusiastic supporter of the agreement. But, now that the flaws in the agreement have been exposed, or shown to be "hocus-pocus" as Congdon maintains, the provisions cannot be changed unilaterally by the British government. They are now part of EU law so, in order to achieve change, all we can do, as Cameron euphemistically put it, is have "…our regulatory authorities, together with the European regulators," address "this difficult issue." And that equivocation is also part of the problem. One might ask why, if Cameron is now so (rightly) certain as to where the problem lies, his shadow chancellor has not raised it before. To be fair to him, he has. He raised it on 21 April 2008 in the House of Commons in response to a statement by Alistair Darling on "financial stability". But it was only one sentence where he told Darling that the moves he had announced "should include reforms to the Basel accords." Then, in a Newsnight interview on 17 September, just a few days ago, he mentioned it again, a reference which met with the approval of Telegraphcolumnist Gerald Warner, who noted: Osborne did not overreact to the crisis by rushing to propose a host of regulations to monitor the stable door now that the horse has bolted. Instead, he proposed revisiting the Basel II Accord, which is now four years old. Thus, while Osborne has belatedly come to the view shared by Spencer and Congdon, and evidently passed this view to his boss, neither he nor Cameron have mentioned Directive 2006/49/EC, nor even the European Union. Yet it is the Directive which must be changed. Yesterday, Cameron entitled his speech, "Together we will find a way through". What he did not specify, however, was how he was going to "find a way through" the EU labyrinth to remove a damaging piece of legislation that is at the heart of this crisis. Thus, while Osborne is accusing Labour of being "in denial" over its role in the financial crisis, the Conservatives too are indulging in their own form of denial. The elephant has re-acquired its cloak of invisibility. The picture shows the headquarters of the Bank for International Settlements in Basel, which hosts the Basel Committee on Banking Supervision meetings. Saturday, 16 May 2009 Basel Accord 1 & 2 comments from Harvard Law School Forum Full Article at http://blogs.law.harvard.edu/corpgov/2009/02/04/the-financial-crisis-and-the-future-of-financial-regulation/#more-841 New approaches to capital adequacy The first is new approaches to the regulation of the capital adequacy of banks. These have of course been extensively revised by the introduction of Basel 2, which has aimed to achieve greater sensitivity of capital levels to the different risks which banks are running, and there are certainly benefits to the Basel 2 approach on which the future system should build. It is important to realize that the crisis developed under the Basel 1 regime not Basel 2, and that Basel 2 would have addressed some of the problems which led to it – for instance the failure to distinguish between the capital required to support mortgages of different credit quality. But it is also clear that we will need to adjust Basel 2 in a number of ways. The general direction of travel will be towards higher levels of bank capital than have been required in the past, and in particular capital which moves more appropriately with the economic cycle and more capital required against trading books and the taking of market risk. • On the economic cycle, there has been considerable commentary on the procyclical nature of Basel 2 risk-sensitive capital measures, and it is inevitable that any system which is risk sensitive, unless deliberate countervailing adjustments are made, will be to a degree procyclical i.e. capital requirements will rise as we head into a recession and credit quality declines. But it is important to note that the degree to which Basel 2 is procyclical in relation to the banking books – credit extension on balance sheet – depends crucially on how it is implemented and can be significantly reduced if banks use appropriate through-the-cycle approaches to estimation of probability of default and loss given default. It is therefore important to ensure that the detailed implementation of Basel 2 does not introduce unnecessary and unintended procyclicality, and the FSA on Monday issued a clarification of our approach designed to ensure this. Looking forward, however, we need to go beyond the avoidance of unnecessary procyclicality and to create a system which introduces significant counter cyclicality, requiring banks to build up substantial capital buffers in good economic times – ratios well above absolute minimum levels – so that they can run them down in bad. Such an approach makes sense from a micro-prudential point of view, reducing the risk of bank failure. But it is also desirable from a macro-prudential and macro-economic perspective: it will tend to place at least some restraint on over-rapid expansion in the boom, and it will reduce the danger that impaired capital makes it more difficult for banks to lend in recessionary times, thus making the recession worse. Ideally, such a regime must be agreed at international level, and the FSA is working closely within the Basel Committee on Banking Supervision and the Financial Stability Forum to design the details. There are many of those details to be worked out; whether the buffer requirements will be defined in formulaic terms, as in the Spanish dynamic provisioning system, or by regulator discretion; and how to deal with the complexity of different economic cycles in the different countries in which a cross-border bank may operate. But the principle is clear. Conclusion To conclude, let me return to my opening thought. We are in the middle of an economic downturn which, to a far greater extent than any since the 1930s, is the result of developments which were to a degree internal to the global financial system. Developments in the banking and the near-bank system, which had been lauded as improving allocative efficiency and financial stability, have in fact caused serious harm to the real economy. The changes which we need to make to create a sounder system for the future will be profound. Their guiding principle should be that they should create a banking system focused on the delivery of the value-added functions of banking which are so essential to a market economy. [1] Even the banks which were largely doing “originate and distribute” would often however have to warehouse significant quantities on balance sheet before packaging and distributing, and could be left with liquidity strains and future potential losses if liquidity suddenly dried up (e.g. Northern Rock) (go back) [2] This assumption seems also at time to have been based on a misunderstanding of the inference that could be drawn from a credit rating, with high ratings treated as carrying the inference of liquidity, rather than simply lower credit default. (go back) [3] Loan to deposit ratios limits continue however to be used in some emerging economies. A number of emerging economies e.g. India, also continue to use reserve asset ratios as monetary policy instruments, with significantly liquid balance sheets a resulting byproduct. (go back)