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Risk management by the Basel Committee: Evaluating progress made from the 1988 Basel Accord to recent developments

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  • Marianne Ojo

Abstract

Purpose – This paper not only aims to trace developments from the inception of the 1988 Basel Accord to its present form (Basel II), but also to highlight flaws inherent in the 1988 Accord and Basel II, by way of reference to developments which occurred during the Northern Rock Crisis. Design/methodology/approach – The paper highlights the importance of risks through a reference to the crucial role played by capital adequacy. In drawing attention to the importance of such a role and tracing developments which have taken place since the inception of the 1988 Basel Accord, it explores and analyses efforts of the Basel Committee to address capital measurement problems and assesses the success of such efforts through an illustration of capital measurement problems which still persist. An evaluation is made of the Basel Committee's efforts to address weaknesses of the 1988 Basel Accord through Basel II. Greater in-depth evaluation of the effectiveness of the Basel Committee's efforts are undertaken through reference to developments which occurred during the Northern Rock Crisis, which is complemented by graphs and figures. Findings – Whilst considerable progress has been achieved, the paper concludes on the basis of the principal aim of these Accords and failures of capital adequacy to address problems related to risk, that more work is still required particularly in relation to hedge funds, liquidity risks, and those risks attributed to non-bank financial institutions. Originality/value – The paper not only highlights existing problems with Basel II, as revealed in the aftermath of the Northern Rock Crisis, but also draws attention to other areas which the Basel Committee and regulators need to focus on.

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Bibliographic Info

Article provided by Emerald Group Publishing in its journal Journal of Financial Regulation and Compliance.

Volume (Year): 18 (2010)
Issue (Month): 4 (November)
Pages: 305-315

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Handle: RePEc:eme:jfrcpp:v:18:y:2010:i:4:p:305-315

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Related research

Keywords: Financial institutions; Hedging; Liquidity; Risk management;

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References

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  1. Marc Saidenberg & Til Schuermann & May, . "The New Basel Capital Accord and Questions for Research," Center for Financial Institutions Working Papers 03-14, Wharton School Center for Financial Institutions, University of Pennsylvania.
  2. Simona E. Cociuba, 2009. "Seeking stability: what's next for banking regulation?," Economic Letter, Federal Reserve Bank of Dallas, vol. 4(apr).
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Cited by:
  1. Saulo Cardoso Maia & Valéria Gama Fully Bressan & Wagner Moura Lamounier & Marcelo José Braga, 2013. "Earnings management in Brazilian credit unions," Brazilian Business Review, Fucape Business School, vol. 10(4), pages 91-109, October.
  2. Balogh Peter & BOLOCAN DRAGOS-MIHAIL, 2010. "The Management Of Credit Risk According To Internal Ratings- Based Approach," Annals of Faculty of Economics, University of Oradea, Faculty of Economics, vol. 1(2), pages 665-671, December.

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