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 Accord: Some Potential Implications of the New Standards for Credit Risk
This paper discusses some potential implications - both intended and unintended - of The New Basel Accord, which is to be finalized by the end of 2001.Our focus is on the reforms of the rules for determining minimum capital requirements for credit risk.The discussion is divided into effects at the level of an individual bank, effects on the structure of the financial markets, and macroeconomic implications.We present a survey of potential effects rather than a profound analysis of any of them.Therefore conclusions are inevitably preliminary, and in many cases they are likely to be controversial.Although the new capital accord as a whole is a major improvement on many properties of the current framework, our aim is to find potential problems that might need to be considered in the implementation and application of the new rules.Overall, the new accord will be largely an experiment, of which many of the consequences remain to be seen.Key words: The New Basel Accord, capital adequacy requirements, credit crisk, banking stability