Potential Issues from Basel II and Basel III: The Australian Case

Potential Issues from Basel II and Basel III: The Australian Case

DOI: 10.4018/978-1-4666-5950-6.ch010

Abstract

The evaluation of the effectiveness and superiority of Basel II compared to Basel I in the previous chapter foreshadowed a series of problems that arose during Basel II implementation. This chapter explores these issues, including alleged implementation burden due to the complex nature of its underlying risk-assessment methodology and strict data requirements; the possibility of competitive disadvantage deriving from the adoption of the IRB approach; pros and cons of retaining a system of external ratings within Basel II; the problematic nature of securitisation; cross-border supervision issues; and potential problems coming out from pillar two risk requirements.
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Competitive Disadvantage And Methodological Burden Relating To Underlying Risk Methods

The Burdens of Basel II Implementation

Information gleaned from interviews undertaken both before and after the sub-prime crisis reveals that problems arising from Basel II implementation could go well beyond those issues primarily exposed by the crisis. In particular, certain of these issues have emerged from interview commentary that has revealed a potential for conflict between regulators and bank risk managers. Encounters with problems of this nature would be expected from the Habermasian perspective adopted in this book, because bureaucrats and banking personnel pursue different strategic interests. Conflicts of this kind have the potential to undermine the effectiveness of the Basel II framework in relation to its objective of stabilizing financial markets.

The following first section is going to expose the burdens confronted by banks in Basel II implementation, as reported by interviewees. The first two subsections are related to the methodology and relevant data issues.

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