Déficit de la Balanza Comercial Bilateral Ecuador – India

In response to growing evidence of regulatory capital arbitrage, regulators began to consider whether the paradigm used so successfully in the regulation of market risk could be applied to credit risk and operational risk. The result is a proposal for a new Basel Capital Accord (Basel II). The Basel Committee found that internal models of credit risk were not yet sufficiently reliable to replicate the approach to market risk for credit risk and so they embarked on a complex course of increasingly intrusive specifications about how banks should manage their credit risk by means of an internal ratings approach. With hundreds of pages prescribing how to risk-weight assets, Basel II has emphatically abandoned the original objectives of simplicity and avoidance of micro-managing lending decisions. Indeed, Taylor (2002) has noted that Basel II may have the unintended consequence of undermining bank governance by prescribing how risk should be managed, traditionally a key responsibility of senior management and the board.

According to Couto and Bulhões (2009) the main objectives of Basel II are to maintain international stability in the banking system and to create a unique methodology for calculating minimum capital requirements for internationally active banks. With complex and consecutive transformations taking place in the banking sector, the new capital accord is adapted to the modern banking reality, strengthening the minimum capital requirements in financial institutions.

Chorafas (2005) indicated that although the concept of operational risk has only appeared lately, occurrences associated with this type of risk have existed in financial institutions for a long time. Basel II was implemented on January 1, 2007 in the G10 countries. It is built on three pillars as can be observed in figure-2.2.

Figure 2.2: Basel II framework

Couto and Bulhões (2009) explained, pillar I ensures that banking institutions hold minimum capital requirements, sufficient to cover all exciting risks. In Pillar II, the national supervisor, Banco de Portugal, must ensure that all national banks have sufficient minimum capital to face all incurred business risks. The national supervisor must also stimulate the development of techniques that could improve risk management in banks. Pillar III of the New Basel Accord ensures that there is transparency in the financial situation and solvency of the institutions, allowing the market to create a more precise analysis of banks profiles and risks, applying incentives to fortify financial institutions’ risk management and levels of capital (IFB, 2006)

Structure of New Basel Capital Accord

Figure 2.3: Structure of New Basel Capital Accord

Basel II provides two different approaches for risk-weighting assets for credit risk. The Standardized Approach is similar to the original Accord, except that it has more risk buckets, makes use of external credit ratings and recognizes some credit mitigation techniques. The internal ratings-based approach (IRB), however, is totally different from the original Accord. A bank that meets a series of qualifying conditions may use components of its own internal credit risk models as inputs in a regulatory model of risk weights in two different versions of the IRB. The Foundation IRB (FIRB) permits qualifying banks to use their own estimates of the probability of default (PD), but uses conservative regulatory assumptions about the loss given default (LGD), exposure at default (EAD) and maturity of the instrument. The Advanced IRB (AIRB) permits banks that qualify for the FIRB and meet an additional set of more stringent conditions, to use their own estimates of PD, LGD, EAD and M as inputs in the regulatory model of risk weights. Since the banks’ own estimates of LGD, EAD and M are likely to be lower than the conservative values assumed in the FIRB, the AIRB will usually result in a lower capital charge. Most

large, internationally active banks are likely to adopt the FIRB or AIRB and so this discussion will focus on these approaches.

The main purpose of Basel II is to (1) eliminate incentives for regulatory capital arbitrage by getting the risk weights right; (2) align regulation with best practices in credit risk management; and (3) provide banks with incentives to enhance risk measurement and management capabilities

In June 1999 the Basel Committee declared its intention to build a new capital adequacy framework, known as Basel II, to replace the 1988 Accord. The new framework maintains both the current definition of capital and the minimum capital requirement of 8 percent of the risk-weighted assets.

(Minimum 8%)

Basel II has stimulated the thinking of nonbank financial institution regulators, for example, the Securities and Exchange Commission (SEC) in the United States has adopted Basel II, which will allow securities firms to opt into the new regulatory capital regime. Further, the insurance industry is currently looking to apply more sophisticated regulatory capital standards. Much of the impetus for banks to develop standardized risk management systems comes from their regulators.

Regulators carefully watch over banks’ activities, monitor their risk management standards closely, and impose a unique set of minimum required regulatory capital rules on them.

Two reasons why they do so: banks collect deposits from ordinary savers, and they play a key role in the payment and credit system. While bank deposits are often insured by specialized institutions, in effect national governments act as guarantor for commercial banks; some also act as a lender of as resort. National governments therefore have a very direct interest in ensuring that banks remain capable of meeting their obligations: they wish to limit the cost of the government “safety net” in the event of a bank failure. This is one reason why the amount of capital retained by a bank is regulated. By acting as a buffer against unanticipated losses, regulatory capital helps to privatize a burden that would otherwise be borne by national governments.

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Furthermore, fixed-rate deposit insurance itself creates the need for capital regulation. As deposits are insured up to a given limit, there is no incentive for depositors who stay within the insured limits to select their bank cautiously. Instead, depositors may be tempted to look for the highest deposit rates, without paying enough attention to a bank’s creditworthiness.

Regulators also try to make sure that banks are capitalized well enough to avoid a systemic “domino effect”, whereby the failure of an individual bank, or a run on a bank caused by the fear of such a failure, propagates to the rest of the financial system. Such domino effects can cause other banks and financial companies to fail, disrupting the world economy and incurring heavy social costs.

Prior to the implementation of the 1998 Basel Accord, in 1992 bank capital was regulated in some countries by imposing uniform minimum regulatory capital standards. These were applied to banks regardless of their individual risk profiles. The off-balance-sheet positions and commitments of each bank were simply ignored. According to Mossa (2010) the global financial crisis has reinforced the pre-existing belief in the weaknesses of the Basel II Accord. It is argued that capital-based regulation and the Basel-style capital regulation cannot deal with financial crises and that attention should be paid to liquidity and leverage. The Accord is criticised, in view of what happened during the crisis, for allowing the use of bank internal models to determine capital charges, for boosting procyclicality of the banking industry, for reliance on rating agencies and for being an exclusionary, discriminatory and a one- size-fits-all approach. It may not be possible to salvage Basel II, and the way forward is perhaps to abandon the idea of unified international financial regulation.