BASEL II

Basel II

Basel II

Introduction

Basel II - a document (order, instruction) proposed and developed by the Basel Committee on Banking Supervision, which contains the criteria for banking regulation. It is designed for financial institutions, as well as for potential borrowers. The document prescribes a mandatory risk management and requires a better supply of equity capital. This paper will discuss the benefits and difficulties of managing risk and ensuring stability in banking.

Coverage risks

The risk of loss assumed by banks to intermediate funds and provides services can be classified as financial makers deliberately and in those who take on an involuntary basis. The main feature of the first is that the banks can measure and manage. Basel II uses probability functions and tools statistics to measure the risks and desegregation in expected and unexpected losses. The derivation of these functions is based on the large number of events which are repeated over time (Engelmann & Rauhmeier, 2011, pp. 49).

The risks of involuntary loss events originate mainly in sporadic and uncertain. They come mainly from the economic and financial environment and can cause significant unexpected losses in a broad group of banks, with sharp falls in economic activity that negatively impact the value of their loan portfolios, and/ or adverse movements in interest rates and types of changes that reduce the value of their investment portfolios or increase the value of its liabilities. Consequently, it is unexpected losses in the portfolios of loans and investments by events that respond to systemic risk that environment. Banks can handle these events but they can guard against unexpected losses caused by higher amounts of capital in Pillar II (the unexpected loss of capital into banks systemic risk to the environment and severe operational failures, demand more capital than 8% of Index of Pillar I of Basel in the standardized approaches of risk).

Unfavourable economic outlook, or adverse changes in the system of prices , can also affect the ability to pay groups of debtors in certain economic sectors, regions or industries . Therefore, the credit risk in the banking sector also has a dimension that can exceed the assessment of debtors individually, in particular banks with loan portfolios concentrated.

Basel II devotes considerable attention to the factors that determine the credit risk in view of its importance in the activity and results of banking. In line with best practices in the area, proposes to measure credit risk from its main components: the risk of the obligor and transaction risk (Gregoriou, 2009, pp. 261).

Impact of Basel II on Risk Management

For purposes of determining the impact of Basel II risk management in environmental and social focus considerations will be made on the issues related to risk management by banks. In principle, it is clear that these considerations do not follow a thorough analysis on the three pillars of Basel II, and only correspond to the proposed agreement where t is believed that there are opportunities for banks to integrate risk management in environmental and social general risk analysis of their ...