Basel II's New Standardized Approach: Possible Effects of Implementation
Basel II’s New Standardized Approach: Possible Effects of Implementation Katherine Wyatt New York State Banking Department Abstract The New York State Banking Department surveyed 33 institutions in 2001 and 2002 for a study of the possible effects of the Standardized Approach of the proposed New Capital Accord. Previously, the BIS Quantitative Impact Studies have focused on internationally active banks; this study provides information on the possible impact of the New Accord on domestic banks with asset size between $1 billion and $40 billion. These institutions are often grouped with community banks. The Department found that implementation of the most recent version of the Standardized Approach could lead to an average decrease of 7% in required capital for credit risk, but adding the proposed operational risk charge could bring the total capital charge on average to an increase of 12%. In addition, the estimated impact of the New Standardized Approach varies widely across institutions in the study: the change in minimum capital required for credit risk ranges from a decrease of 23% to an increase of 6%. The Basic Indicator charge for operational risk ranges from 5% of minimum regulatory capital for one savings bank to 83% of minimum required capital for a specialty bank. In this paper, we present a breakdown of the effects of the various elements of the proposed Standardized Approach, and consider a modified approach. We also analyze Call Report data for the survey banks to determine their “complexity profile” and review possible changes to their capital ratios.
Munich Personal RePEc Archive Basel II , External Ratings and Adverse Selection
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The New Basel Capital Accord and Questions for Research 1
The New Basel Accord for bank capital regulation is designed to better align regulatory capital to the underlying risks by encouraging better and more systematic risk management practices, especially in the area of credit risk. We provide an overview of the objectives, analytical foundations and main features of the Accord and then open the door to some research questions provoked by the Accord. We see these questions falling into three groups: what is the impact of the proposal on the global banking system through possible changes in bank behavior; a set of issues around risk analytics such as model validation, correlations and portfolio aggregation, operational risk metrics and relevant summary statistics of a bank's risk profile; issues brought about by Pillar 2 (supervisory review) and Pillar 3 (public disclosure).