Basel II target institutions and present expanded scope

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Basel II target institutions (whether Basel II was initially for the largest banks in developed countries.

Basel 1 was aimed for        at international active banks in developed countries.

The Basel Committee focused on facilitating and enhancing information sharing and cooperation among bank regulators in major countries and developing principles for the supervision of internationally active large banks.(Kaufman, G.G., 2003).  Both Basel’s were designed by regulators from developed economies to meet the main perceived regulatory challenges and their largest banks faced. The main criticisms have been in its applications and impacts on developing countries. This seems intrinsically linked to the fact that developing countries are not at all represented in the Basel Committee for Bank Supervision (BCBS). The new framework has been designed primarily for adoption by the G-10, and the basel committee originally expected this group of countries to be ready to implement the framework by the beginning of 2007. Current G-10 members are Belgium, Netherlands, Canada, Sweden, France, Switzerland, Germany, UK, Italy, US and Japan. At the same time, the basel committee recognizes that many non g-10 countries worldwide may wish to adapt the new framework to their own national realities and circumstances, and to have their own timetable for adopting the new rules.        Countries from the European union (EU) are set to comply with the new Basel rules from January 2007. The same deadline applies to advance countries in Asia. However, banking regulators in the US decided to delay adoption at least until January 2008. At the same time they are proposing adoption of different approaches for the US banks. In September 2006, the four regulators proposed that the IRB (internal ratings-based) approach should apply to the largest and internationally active banks only (26) in total. For the remaining banks, the US regulators are proposing a revised version of the existing capital rules known as Basel IA. Basel II covers all OECD (Organisation for Economic Co-operation and development), the advance economies. Within this group the largest anomaly is in the US, where only the largest banks will be required to adopt the accord, it is being optional for others.(Griffith-Jones, S., 2007).  Indeed, US banks regulators have effectively rejected Basel II as a requirement for all but the largest 10 or so internationally active banks, which would be required to use the advance IRB approach. All other banks may compute their RBC on the basis of the current Basel I, although they can adopt the advance IRB approach if they wish and their supervisors concur. The major features of Basel II has been incorporated by the EU in a proposed revision of its Capital Adequacy Directive (CAD) for financial institutions. (Kaufman, G.G., 2003).

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Basel II present expanded scope (whether Basel II is applied to every type of bank).

The new framework will apply to all ‘credit institutions’ (principally banks but also other institutions such as credit cooperatives which receive deposits and other repayable funds from the public and make loans for their own account) and investment  firms. Special adaptations of Basel II rules in the European Commission’s new framework provide for greater flexibility regarding the selection of more sophisticated approaches and options, simpler rules for the capital changes for the operational risks for low/medium investment firms. ...

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