Abstract This paper describes the Basel II project. The author traces the development of this coordination system for banks, showing how the current project builds on Basel I. The paper further describes the need for coordination among risk data at banks, and explains why implementation of Basel II can be a challenging process.
From the Paper "However banks are still not coordinating data properly. In other words, while they are rapidly adopting Basel II, they are still underestimating the importance of sharing data across various units. McKibben notes that" Although it is a best practice, coordination of data among risk segments and with other enterprise data initiatives has not been widely adopted by banks. A recent Gartner G2 survey of 97 US based banks of various sizes found that less than half coordinate operational-risk data activities with those for corporate performance management, only about one third coordinated risk activities with customer relationship management, and only 6% coordinate data initiatives with regulatory compliance."
Tags: risk, management, banking, Basel, I, Basel, II
This paper deals with the consequences of Basel II regulations for Europe, the United States and some developing countries in the Middle East, especially Egypt.
Abstract The paper discusses Basel II that was published in June, 2004 in order to set international standards for banking regulation. The paper examines the effects of Basel II on Europe and the United States and its effect on some developing countries in the Middle East, Egypt in particular. The paper shows how the Basel II accords bring needed transparency and better risk reporting, but have relatively little effect on the emergence of better banking in developing countries.
Outline:
Introduction
Basel I's creation and evolution
Banking in Egypt Prior to Basel II
Economic Changes in the Developing and Developed World
Comparison of Financial Performance
Convergence and Trade with Money-Center and Developing World Financial Institutions
Basel II Main Tenets
Implementation of Basel II
Focus of Basel II Differs from the Focus on Developing Country Financial Systems
Implications for Egypt and Other Developing Countries
Conclusion
From the Paper "Basel's committee on banking supervision was established as a response to the changes in world currency in the years leading up to 1974. By that time, the US and Great Britain had decoupled their currencies from gold and silver which had been established in the 1940's, and therefore offered a 'pure' promissory currency. Increases in oil prices in 1974 led to massive transfers of wealth to Middle Eastern nations, and several banks were imperiled by these changes."
Abstract This paper explains that Basel II is recommendations and regulations issued by the Basel Committee on Banking Supervision as an attempt to create a more stable banking environment, to limit the risk of default and to create a common global risk management framework. The paper explains its three-pillar approach to better manage risk and to increase disclosures and then describes potential problems created by the Basel II framework in its implementation in developing countries. The paper then relates that, these developing countries are still anxious to apply Basel II because a stable banking sector could be successfully expanded to a stable and healthy economy.
From the Paper "For developing countries, such a situation poses potential significant threats. First of all, during recessions, it would make it much harder for developing countries to raise capital and thus can lead to the crisis going on indefinitely, rather than the capacity of the developing country to raise funds helping end the recession. Further more, even in normal economic growth phases, for developing countries, with a growing economy based very much on the existence of credit, a stifled credit policy can prove an important potential problem."
Tags: global risk disclosure, implementation costs, microstability
Abstract The paper explains that as advancements and changes in banking and financial markets increase, so do the risks involved. To protect these risks, the Bank for International Settlements created the Basel Committee, which established the Basel accords, which set forth the framework to minimize credit risk by introducing capital adequacy standards for large active banks. The paper presents a historical overview of the Basel accords and committee and then critically analyzes the current issues facing the accords. The paper discusses how the proposed BaselII framework provides a major advancement in protecting financial systems. The paper contends that although the implementation of the new accord is a complex process, our country's financial and economic stability is well worth the extra effort.
From the Paper "Throughout the world, the business of banking involves taking and managing risks. Lending money, for example, involves the risk that the borrower might not repay the loan as promised or depositing money with the bank paying out interest at a fixed rate, only to be faced with the risk of interest rates dropping and the bank earning less on its investments than its paying out on interest towards the deposited amount. As advancements and changes in banking and financial markets increase, so does risk. The position of the banking business in the financials services industry has become such a large entity, that the management of banking risks has become ever more important to the financial stability and growth of the world economy."
Abstract This paper describes and explains the internationally agreed upon framework for capital measurement that was developed by the Basel Committee on Banking Supervision as part of the New Basel Capital Accord. It explains the revisions in the New Accord, which focus on advanced risk and capital measurement methodologies, the main drive for imposing the new regulation requirements, the Accord's risk management philosophy, and how it is supposed to handle risks within financial institutions.
From the Paper "The Basel Capital Accord was published in July 1988, with full implementation completed by the signatories of the Accord by the end of 1992. The New Accord was proposed in early 2002, with finalized edicts during 2003 and full implementation scheduled for January 1, 2007. The New Basel Accord will have a major impact on the global financial industry and will facilitate global coordination.1 Approximately 110 countries are signatories to the New Basel Accord. The European Union (EU), Canada, United Kingdom, Singapore, Australia, and the United States are accelerating the implementation of the New Basel Accord in their jurisdictions."
Abstract This paper discusses how there is national and international pressure for Canada and the United States to improve operations of the waste oil industry. Also examined is how, although rules, regulations and laws are improving moderately across the globe with world meetings such as the Kyoto Accord and Basel Convention, the standards set by the two nations are in dire need of improvement. The paper contends that more research and public education is needed on this topic and that international task forces such as the Basel convention need to be more effective in ensuring nations are complying with waste oil safety proposals.
From the Paper "The United States government has passed legislation to deter improper operations in the waste oil industry such as hazardous dumping. In 1976, Congress passed the Resource Conservation and Recovery Act (RCRA), which established a minimum set of standards and regulations for control of hazardous wastes throughout the nation (Schichor, Gaines and Ball, 2002). The results of such legislation increased the costs of disposal of oil waste. This lead companies that were responsible for disposing of toxic waste to turn to illegal means of disposal to reduce costs. An example of this is the Russell Mahler case, where tens of thousands of gallons of waste had been dumped by his company into sewers. Mahler was fined $750,000, served a one-year prison sentence and was one of a handful of people in the country to serve time for such offenses (Schichor, Gaines and Ball, 2002). "
Abstract This paper studies studies the main factors which led to the ultimate failure of the Council of Basel in 1449. It looks at how it was
an organisation that gave way to radicalism, its conflict with Eugenius IV and his successor Nicholas V and the loss of support the council suffered in its latter stages. It shows how the radical membership that the Council of Basel contained eventually destroyed it through a dispute that marked the end of the Conciliar movement of the late medieval period.
From the Paper "The Papacy's acquisition of the support of the secular rules in particular The Holy Roman Emperor, was the main factor for the ultimate failure of the Council of Basel. In the early stages of the council both France and the Holy Roman Empire took a neutral stance, and from 1440-45
relations between Eugenius IV and the Empire changed little. However, circumstances changed this stance. Political exigencies in Hungary made friendship with Eugenius IV particularly desirable for the Emperor Frederick III. To gain the Emperors support Eugenius granted Frederick the right to nominate various Papal offices within his state, several benefits and most importantly he paid him a substantial sum of money."
Tags: conciliarism, eugenius, roman, emperor, france, pope
Abstract In addition to the secrecy of Swiss banks, they differ from U.S. banks in two other significant ways, the variety of services offered and the quality of their loans. This paper examines the history of Swiss banking and compares it to the American banking system. The paper also discusses the billions of dollars belonging to Holocaust victims that were held by the Swiss banks for so many years, before a solution was found.
From the Paper "In 1996 US Senator Alfonse D'Amato (R-NY) brought this issue to the attention of the US government and hearings were held in the Senate. On February 6, 1997, three Swiss banks, following intense pressure form the US, announced they would create a humanitarian fund of 100 million Swiss Francs ($70 million US Dollars). Jewish organizations were critical, however, estimating that there could be billions unaccounted-for. Later that year, the Swiss government created a humanitarian fund of five billion dollars."
Abstract This paper explains that, even though transformation of deposits into loans generates a return but engenders financial risks and particularly an interest rate risk, the Basel II Committee does not provide any standardized method to manage this crucial risk. The author adapts the Markowitz portfolio selection theory on the banking, particularly on the commercial balance-sheet. This model is tested on Credit Foncier de Monaco and finds that this tool maximizes under constraints the risk-adjusted performance and determines the optimal allocation of the assets. In conclusion, the theoretical objectives are compared with the actual results. Numerous formulas are used throughout the paper and seven appendices are included.
Table of Contents:
Abbreviations
Introduction
Theoretical Modelling
Identification
Interest Rate
Nominal Vs. Real Rate
Short-Term Vs Long-Term Rates
Spot Vs. Forward Rates
Term Structure Of Interests
Theories
Methods
Deterministic And Stochastic Models
Sources Of Interest Rate Risk
Repricing Or Maturity Mismatch Risk
Basis Or Bid-Ask Spread Risk
Yield Curve Risk
Options Risk
Interest Rate Exposure
Net And Gross Positions
Balance-Sheet & Gap
Profit & Loss Statement & Spread
Factors
Measurement
Volume
Instantaneous Gaps
Generalized Gaps
Indexed Gaps
Simulated Gaps
Value
Duration
Convexity
Market
Margin
Sensitivity
Modified Duration And Relative Convexity
Money Markets Rates
Management
Hedging And Speculation
Micro Or Macro Hedging
Systematic Or Selective Hedging
Partial And Total Speculation
Hedging Risk And Opportunity Cost
Passive And Active Hedging
Passive Hedging Or Beta Management
Active Hedging Or Alpha Management
Instruments
Spot
Forward And Future
Fra And Swaps
Options
Modelling
Utility
Structure
Utility Function
Constraints
Regulation 40
Commercial
Model
Objective Function
Efficient Portfolio
Optimal Portfolio
Empirical Application
Presentation
Cfm
Treasury
Asset-Liability Management (Alm) Committee
Adaptation
Structure
Constraints
Rates
Simulation
Leverage
Regulatory Constraints
Variance-Covariance Matrix
Utility
Variances
Conclusion
Glossary
Appendices
Balance-sheet + Profit & Loss Statement
Balance-Sheets by Currency, Maturity and Interest Rate
Gaps
Correlation and Variance-Covariance Matrix
Weightings and Balance-Sheets in March 2008
Coefficient of Variations for Different Scenarios
Objective Function for Different Aversions to Risk
From the Paper "The bank uses options to hedge against the exercise of inserted options. The interest rate option is the right for the holder to borrow from (put) or lend to (call) the writer an underlying at the strike rate against a premium at each date (American option), at predetermined dates (Bermuda option) or at maturity (European option). The basis strategy of the bank is long call or short put in case of decrease of interest rates and short call and long put in case of increase of interest rates."
