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BASEL II: ACCORD OR DISCORD? |
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CONTEXT
In 1988, the Basel Committee on Banking Supervision (established by the central-bank Governors of the Group of Ten countries at the end of 1974) introduced a capital measurement system commonly referred to as the Basel Capital Accord. Since 1988, this framework has been progressively introduced not only in member countries but also in virtually all other countries with active international banks. In June 1999, the Committee issued a proposal for a New Capital Adequacy Framework to replace the 1988 Accord. It aims to complete the new Accord (Basel II) by mid 2004 and introduce the framework in its member countries by the end of 2006. The framework consists of three pillars
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Minimum capital requirements |
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Supervisory review of an institution’s internal assessment process and capital adequacy |
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Effective use of disclosure to strengthen market discipline |
Click here for more information on Basel II.
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DETERMINING THE IMPACT OF BASEL II
The new Accord aims to more accurately align regulatory capital with the risks that international banks face. More broadly, the Accord is intended to be an important element in the provision of the GPG of international financial stability and market efficiency.
However concerns have arisen that these regulations will have adverse effects in developing countries. Stephany Griffith-Jones, Research Fellow and Professor at the Institute of Development Studies, has argued that some aspects of Basel II could harm developing countries. She states that the Basel II proposals would, among other things, significantly overestimate the risk of international bank lending to developing economies, possibly leading to a decline in flows to the developing world.
Click here to read a note by Professor Griffith-Jones detailing the potential harmful effects to developing countries of Basel II, and here to read a technical paper that she co-authored on the same subject.
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THE
POINTS FOR DEBATE
To address the impact of Basel II in developing countries, the following points for debate are suggested:
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What specific effects will the New Basel Accords have on developing countries? |
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What measures could be introduced in order to reduce potential negative effects, namely to take account of diversification of risk? |
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Why have measures to curb the potential negative impact of Basel II on developing countries NOT been taken, despite inaction being described as "…technically wrong, economically unwise and politically insensitive"? |
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Given that Basel II is set to be implemented this year despite present criticisms, what is the best next step? |
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PARTICIPATE
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gpgnet-basel@groups.undp.org
The discussion forum on this issue will be open from 26 May through 14 June 2004. After the discussion closes, we will prepare a report with reflections on the debate, which will be published on this website.
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