Basel II: Vintage 2003

DOIhttps://doi.org/10.1108/13581980410810650
Date01 March 2004
Publication Date01 March 2004
Pages22-35
AuthorAndrew Cornford
SubjectAccounting & finance
Basel II: Vintage 2003
Andrew Cornford
Received: 10th November, 2003
United Nations Conference on Trade and Development (UNCTAD), Palais des Nations,
CH-1211 Gene
`ve 10, Switzerland; tel: +41 22 344 7052; fax: +41 22 344 7052;
e-mail: andrew.cornford@bluewin.ch
Andrew Cornford is a research fellow at
the Financial Markets Center, a US organi-
sation with a programme of monetary and
financial research, education and policy
development directed at both specialist
and non-specialist audiences. Previously
he spent more than 20 years as an econo-
mist at the United Nations Conference on
Trade and Development (UNCTAD) where
he worked mainly on financial markets
and regulation, and was part of a team
which advised negotiators from developing
countries on financial services during the
Uruguay Round of multilateral trade nego-
tiations.
ABSTRACT
KEYWORDS: bank capital, Basel Commit-
tee on Banking Supervision, credit risk,
internal controls, risk weights, supervisory
review, transparency
This paper is a commentary on the third in the
series of consultative papers (CP3) on a New
Basel Capital Accord for banks, earlier papers
being issued in 1999 and 2001. While CP3
retains the overall structure of its predecessor, it
contains many revisions and a more complete
set of rules. Greater coherence has not, how-
ever, been accompanied by a reduction in com-
plexity. This is partly an inevitable
consequence of attempting to set global standards
for banks at different levels of sophistication.
But it also reflects financial innovation and the
growing complexity of banking practice, which
are a continuing source of problems for regula-
tion. Many of the revisions in CP3 in compari-
son with 2001 are a response to representations
from governments and the financial sector in
areas such as greater flexibility regarding adop-
tion of different elements of the internal ratings-
based approach, adjustment of the risk weights
for lending to small and medium-sized enter-
prises (SMEs) to avoid punitively high interest
charges, and a less prescriptive approach to
measuring operational risk under the most
advanced option for handling the subject. The
Basel Committee on Banking Supervision
intends to address some continuing reservations
concerning the shape of the New Accord before
mid-2004. Even these further changes, how-
ever, are unlikely to bring on board major coun-
tries which have declared that they will not
apply the New Accord or limit its application
to a minority of their banks.
THE APRIL CONSULTATIVE PAPER IN
CONTEXT
The April 2003 consultative paper of the
Basel Committee on Banking Supervision
(BCBS), The New Basel Capital Accord
(henceforth CP3), is the third in a series
stretching back to the sketch of key new
ideas on the subject in the paper of 1999, A
New Capital Adequacy Framework. Since
mid-1999 working groups on the different
subjects to be covered by a new accord
have proliferated, and a large-scale consul-
tation exercise has been undertaken. CP3 is
a considerable step forward in comparison
Page 22
Journal of Financial Regulation and Compliance Volume 12 Number 1
Journal of Financial Regulation
and Compliance, Vol. 12, No. 1,
2004, pp. 22–35
#Henry Stewart Publications,
1358–1988

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