Why markets do not trust Basel II Internal Ratings-Based Approach: What can be done about it?

Simon Samuels
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Simon Samuels: Barclays, UK

Journal of Risk Management in Financial Institutions, 2013, vol. 6, issue 1, 10-22

Abstract: The Basel capital adequacy standard is in crisis. The cherished goal of a global level playing field has fallen by the wayside, replaced by an over complicated regime that many of the world’s most important banks have not adopted, while those that have are facing outright rebellion from capital markets that no longer trust risk-weighted assets (RWAs). While some of the debate on this topic is superficial and generates more heat than light, the further investors dig into the apparent inconsistencies in RWA calculations the less confident they become. Faced with this, it is argued the Basel Committee has two options — either try and ‘prove’ RWAs work or else dumb it down. The fear is that the committee’s instinct is to focus only on the former, something that might end up with the Basel framework becoming increasingly irrelevant.

Keywords: RWAs; internal ratings-based (IRB) regime; standardised approach; level playing field; Basel I; Basel II (search for similar items in EconPapers)
JEL-codes: E5 G2 (search for similar items in EconPapers)
Date: 2013
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