Tumoユ.reveals

the inadequaq′of Bttd IIM
Harald Benink andCeorge Kaufmanёturmoll in wOrld fmancial
ntarkets, triggered by defaults
on subprllne mortgages in theUS, raises questions abo,t

1器 l
苦艦精∬∫翻ま密釜c指adequacy framework for banks.
The implementation of Basel II coin‐vith massive losses reported bycides 、
some of the world's largest bankS,
計tiVL
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are basically the Same as the ones
many of these banks have been usmg
in recent years,Sheila Bair,chairmanof the Federal DepOsit lnsurance Corpo・
ration in the US, reCently noted thatthese models had important weak‐nesses which, in the hght Of tOday's
market turmoil,were a flashing yenOw
Hght to drive carefully.
Basel II aims to addressヽ veaknesses
in the Basel l capttal adequacy frame‐
work for banks by incorporating more

historically low levels, typiCally atabout 7 per Cent of total assets(on anon risk‐Weighted basis). During thepast five years,several so‐ caned̀̀quan̲titative lmpact studies''(QISS)haVebeen conducted■ lnder the auspiCes ofth6 Basel conllnittee on Banking
SuperViSiOn tO explore the conSe‐
麒 rTぶ

麟 翼 竜: 認 路: 精 1 1 盤

A fundamental problem
is that Basel‖creates potentia‖ yperverse lncentives tounderestiEDlate credit risk
show that bank captal requirements
wm fall ftlrthげfor many banks WhenⅡ rules are fully inlple‐
the Baselmented.In the US,the QIS results indi‐cate potmtial rё ductions in requlred
capital of more than 50 per cent forsome of the largest banks.
The turlnoil on inancial markets,
wllich has caused large banks tO takesubstantial lbsses and search fbr signif

detailed calibration of credlt risk andby requlrlng the pricing of Other fonns
Ⅱ framework,of risk.Under the Baselregulators a1loW large banks withi:廿
鳳 ∫温官 li∬ Is酬
盤
theせ own models in determining themmimuln amOunt of capital they are
reqdred to hold by the rё gulators as abuffer against lmexpected losses
However,recent events chanenge thetsefulness of important elements in theBasel II accord.The need tO reCapital‐ise banks reveals that the internal risk
models of many banks performed

灘翻brw棚 嵐艦 認 ‰誠鶴Basel II creates perverse incentives tounderestinlate credit risk. Because
banks are a110"ed to use their own
models for assesslng risk and deternim‐:醜淵: ∫瀾龍 ふ鍔臨
tic about their risk expOSure m order tominilnise requlred regulatory capitaland tO maximise rettlrn on equity.
Bank capitallasSet ratiOS are near

icant new capital,indicates that Basel
H should not be Lmplemented,if at an,
without first making a number of
此嘗血琴∫ 蒔ttee toFttst,we urge the Basel co―conduct another quantitative impact

翻「Ltth蜘棚&l臨
艦i鰤
use their internal modelS fOr calculat‐i彎
ndT脚 糧e iea品
鋼「まels should be cOmplemented by a credi‐
ble and effectiVe form of lnarket diSCrr雅・胤 l蹴￡ :Sthi螺曖瞭■ fails to create mcentives
same tlme
for professional investors to use thisinformation in an optimal way.As long

1濡:Tr:珊盟l議}』:i器
往品:精聰 曇

money is not really at stake.ThiS Will

nlitigate their incentives to use the dis‐°r蹴 器 雛 c轟」 鋤 c l o s e d i n f o r m a t i o n . A m a n d a t O r y'W稲認甜穏:置I慧淵出職蜆留Ъ計 鸞 i¶鵬ュ
貯1轟盤駆ttte∫
靴競盟1譜
incentives to reduce capital.
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朧1°p扁
ο 胸 物 απ
α知 ″ B 切 れた αηα α οr ク憔選
‰1:Lg篤猟鷺:tl盤′ 写ο ″α″ 鮮《ヽヵηαηεο ὰ″̀力" r sげげ 面
asαπασθποπLOο′あ 瞭 tSπ
Sc・織∫鵬 αしαクレπあarsグ
艦盤躍精棚 鵠 I』
″ Cんタん αηα Lq′ ρ滋 助ヴυ￠βグαra αJsOて力αれたりOυ %の猟:肥獅雅 cagO″
器ど録2Cじり■電T馴 」
霧御%αη げ 滋′ Sん ααοωπαη απα CO‐Cんαグ
eC躍 翼轟脚 tttЪSグηOη COπ ″グ οα滋′BasdLη αηcグααπ″Rη
ё路I∫
υ′EIS″wecιグ
6■Zαropa α力θisk血″̀″ⅡapproachuShg banks'own

adoptiOn of a meaningful ,On riSk‐