Topic: Basel II

Effective Maturity in Basel II

Under the advanced IRB approach of the Basel II accord, the banks are allowed to develop their own internal models that they can use to measure the capital require for credit risk. Under this model, the banks are allowed to make their own estimation of various...

Definition of Operational Risk

Operational risk is a very broad concept and it is very difficult to agree on one common definition that fits everyone’s needs. Operational risk primarily focuses on risks arising from failures in processes, systems, and people, and can also include things such...

The Reasoning Behind Basel III

In an interview with Knowledge@Wharton, Wharton finance professor Richard J. Herring discusses the reasoning behind the new capital-adequacy requirements in Basel III, some shortcomings and how the financial services industry will begin to cope with it. For the...

Understaning Economic Capital

Economic capital is a measure of risk, not of capital held. As such, it is distinct from familiar accounting and regulatory capital measures. Conceptually, economic capital can be expressed as protection against unexpected future losses at a selected confidence level....

Practical Guide to Basel II Implementation: Part 2 of 6

In part 1, we provided a general overview to get started with the Basel II implementation. We will now discuss the factors to be considered in determining the application of Basel II from both a supervisor and a bank perspective. A key objective of Basel II is to...

Practical Guide to Basel II Implementation: Part 1 of 6

In June 2004, the Basel Committee on Banking Supervision (BCBS) published the document “International Convergence of Capital Measurement and Capital Standards, a Revised Framework” (widely known as Basel II). Basel II aims to build on a solid foundation of...

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