Risk management and Basel‐Accord‐implementation in Pakistan
| Pages | 293-306 |
| Published date | 20 July 2012 |
| DOI | https://doi.org/10.1108/13581981211237981 |
| Date | 20 July 2012 |
| Author | Omar Masood,John Fry |
| Subject Matter | Accounting & finance |
Risk management and
Basel-Accord-implementation
in Pakistan
Omar Masood
Royal Docks Business School, University of East London, London, UK, and
John Fry
Department of Physics and Mathematics, Nottingham Trent University,
Nottingham, UK
Abstract
Purpose – Recent events demonstrate that problems in the banking system pose a significant threat
to the health of the global economy. Despite several shortcomings the Basel Accord thus emerges as an
attempt to protect banking systems. The purpose of this study is to shed light on potential barriers to
implementation of the Basel Accord in emerging countries. Several issues of wider interest to risk
management and financial regulation also emerge.
Design/methodology/approach – The paper maps implementation of the Basel Accord against the
wider regulatory context. Against this backdrop, the Basel Accord appears well-motivated but is
limited by several practical considerations. These factors, amidst other practical implications, are
identified as the paper applies rigorous statistical methods to novel primary survey data from risk
managers.
Findings – The Basel Accord is generally well-received due its dual aims of improved capital
administration and scientific risk management. Operational risk is a significant barrier to
implementation, with a number of further issues only partially addressed (see below). Equally
supported by both public and private sector banks the reasons for delay appear due to lack of technical
expertise and the level of preparation. Results highlight credit risk, practical implementation issues (IT
and HR), minimal capital requirements, data security and operational risk as issues of critical
importance.
Originality/value – The originality of the contribution lies in the scientific treatment of novel
primary data from risk managers tasked with implementation of the Basel Accord. Findings suggest
several important practical implications discussed above.
Keywords Riskmanagement, BaselAccord, Banking, Financialregulation,Emerging markets, Pakistan
Paper type Research paper
1. Introduction
As long ago as the 1970s financial crises have prompted the Basel Committee on
Banking Supervision (BCBS) to work towards global financial stability, most notably
via the Basel Accord. The Basel Accord has wide support and should improve financial
stability via its risk-sensitive methodologies (BIS, 1999; BCBS, 2004; Cumming and Nel,
2005; van Rixtel et al., 2004; Jacobsohn, 2004) and the scientific alignment of risk and
capital. Such standards benefit the economy by protecting banks against risk and aim
to guarantee the availability of capital throughout business cycles (BIS, 2004; Hassan
Al-Tamimi, 2008), guarding against systemic risk (Amidu, 2007). By rationalizing
banks’ risk appetites the Basel Accord can also, in principle, manage developments
pertaining to financial instruments and technologies (Mboweni, 2004).
The current issue and full text archive of this journal is available at
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Risk
management
293
Journal of Financial Regulation and
Compliance
Vol. 20 No. 3, 2012
pp. 293-306
qEmerald Group Publishing Limited
1358-1988
DOI 10.1108/13581981211237981
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