A Capital Accord for Emerging Economies?

The Basel 1988 Capital Accord is arguably the most successful of all recent financial "standards." Although it was designed for internationally active banks in G10 countries, more than 100 countries claim to adhere to it, and many apply t...

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Main Author:	Powell, Andrew
Format:	Policy Research Working Paper
Language:	English en_US
Published:	World Bank, Washington, D.C. 2013
Subjects:	ARBITRAGE BALANCE SHEETS BANK CAPITAL BANK GUARANTEES BANK HOLDING COMPANY BANK LENDING BANK OF ENGLAND BANK PORTFOLIOS BANKING SUPERVISION BANKING SYSTEM BANKS BONDS CAPITAL REQUIREMENT CAPITAL REQUIREMENTS CENTRAL BANK CONSOLIDATED SUPERVISION CONSOLIDATION COST OF CAPITAL CREDIT RATING AGENCIES CREDIT RISK DEBT DISCLOSURE ECONOMIC CONDITIONS ECONOMICS EMERGING ECONOMIES EMU FINANCIAL INTERMEDIATION FINANCIAL REGULATION FINANCIAL STABILITY FOREIGN CURRENCY INFLATION INTEREST RATES INTERNATIONAL BANKS LENDER OF LAST RESORT LENDING INSTITUTIONS LEVEL PLAYING FIELD LIQUIDITY MARKET DISCIPLINE OPERATIONAL RISK PORTFOLIO PRIVATE BANKS PROBABILITY OF DEFAULT RATING AGENCIES RATING SYSTEM RATING SYSTEMS RECESSION RETAIL RETURN ON EQUITY RISK FACTORS RISK MEASUREMENT SECURITIZATION SOLVENCY SOVEREIGN RISK SUBSIDIARIES EMERGING ECONOMIES INTERNATIONAL STANDARDS BANKING SYSTEMS CORPORATE LOANS BANK REGULATION INTERNATIONAL AGREEMENTS
Online Access:	http://documents.worldbank.org/curated/en/2002/03/1743999/capital-accord-emerging-economies http://hdl.handle.net/10986/14827

id	okr-10986-14827
recordtype	oai_dc
spelling	okr-10986-148272021-04-23T14:03:20Z A Capital Accord for Emerging Economies? Powell, Andrew ARBITRAGE BALANCE SHEETS BANK CAPITAL BANK GUARANTEES BANK HOLDING COMPANY BANK LENDING BANK OF ENGLAND BANK PORTFOLIOS BANKING SUPERVISION BANKING SYSTEM BANKS BONDS CAPITAL REQUIREMENT CAPITAL REQUIREMENTS CENTRAL BANK CONSOLIDATED SUPERVISION CONSOLIDATION COST OF CAPITAL CREDIT RATING AGENCIES CREDIT RISK DEBT DISCLOSURE ECONOMIC CONDITIONS ECONOMICS EMERGING ECONOMIES EMU FINANCIAL INTERMEDIATION FINANCIAL REGULATION FINANCIAL STABILITY FOREIGN CURRENCY INFLATION INTEREST RATES INTERNATIONAL BANKS LENDER OF LAST RESORT LENDING INSTITUTIONS LEVEL PLAYING FIELD LIQUIDITY MARKET DISCIPLINE OPERATIONAL RISK PORTFOLIO PRIVATE BANKS PROBABILITY OF DEFAULT RATING AGENCIES RATING SYSTEM RATING SYSTEMS RECESSION RETAIL RETURN ON EQUITY RISK FACTORS RISK MEASUREMENT SECURITIZATION SOLVENCY SOVEREIGN RISK SUBSIDIARIES EMERGING ECONOMIES INTERNATIONAL STANDARDS COST OF CAPITAL BANKING SYSTEMS CAPITAL REQUIREMENTS CORPORATE LOANS FINANCIAL INTERMEDIATION BANK CAPITAL BANK REGULATION INTERNATIONAL AGREEMENTS The Basel 1988 Capital Accord is arguably the most successful of all recent financial "standards." Although it was designed for internationally active banks in G10 countries, more than 100 countries claim to adhere to it, and many apply the Accord to all banks. Significant changes to this Accord are currently under discussion. The author reviews the current proposals (published in January 2001) from the standpoint of an emerging market. He then addresses how implementation in G10 countries will affect the cost of capital to emerging economies. The new proposals make considerable advances in linking risk and regulatory capital for internationally active banks, especially for their corporate loan book. But the corporate-calibrated internal ratings-based (IRB) approach leads to significant changes in capital requirements and spreads for banks that lend to emerging countries. The author proposes that for sovereign lending, banks should develop internal ratings according to an S&P or Moody's scale, and capital charges be levied at the corresponding weights given by the standardized approach. The author argues that the more detailed and specific the proposals are for G10 internationally active banks, the less relevant the proposals will be for non-G10 countries that wish to implement the new Accord for all banks. Indeed, many emerging countries will implement the 'standardized' approach, in which case, given the limited universe of rated risks, little will change. Alternatively, emerging countries will attempt to implement an IRB approach, but with significant problems implementing and calibrating the parameters-or inappropriate use of G10 calibrations. At the same time, banks in emerging economies remain the most important vehicle for financial intermediation and the appropriate regulation of bank capital one of the most important issues for financial sectors. The author suggests that additional alternatives should be included or, failing that, the time may have come specifically for an Accord for emerging economies. 2013-08-06T17:26:43Z 2013-08-06T17:26:43Z 2002-03 http://documents.worldbank.org/curated/en/2002/03/1743999/capital-accord-emerging-economies http://hdl.handle.net/10986/14827 English en_US Policy Research Working Paper;No.2808 CC BY 3.0 IGO http://creativecommons.org/licenses/by/3.0/igo/ World Bank World Bank, Washington, D.C. Publications & Research :: Policy Research Working Paper Publications & Research
repository_type	Digital Repository
institution_category	Foreign Institution
institution	Digital Repositories
building	World Bank Open Knowledge Repository
collection	World Bank
language	English en_US
topic	ARBITRAGE BALANCE SHEETS BANK CAPITAL BANK GUARANTEES BANK HOLDING COMPANY BANK LENDING BANK OF ENGLAND BANK PORTFOLIOS BANKING SUPERVISION BANKING SYSTEM BANKS BONDS CAPITAL REQUIREMENT CAPITAL REQUIREMENTS CENTRAL BANK CONSOLIDATED SUPERVISION CONSOLIDATION COST OF CAPITAL CREDIT RATING AGENCIES CREDIT RISK DEBT DISCLOSURE ECONOMIC CONDITIONS ECONOMICS EMERGING ECONOMIES EMU FINANCIAL INTERMEDIATION FINANCIAL REGULATION FINANCIAL STABILITY FOREIGN CURRENCY INFLATION INTEREST RATES INTERNATIONAL BANKS LENDER OF LAST RESORT LENDING INSTITUTIONS LEVEL PLAYING FIELD LIQUIDITY MARKET DISCIPLINE OPERATIONAL RISK PORTFOLIO PRIVATE BANKS PROBABILITY OF DEFAULT RATING AGENCIES RATING SYSTEM RATING SYSTEMS RECESSION RETAIL RETURN ON EQUITY RISK FACTORS RISK MEASUREMENT SECURITIZATION SOLVENCY SOVEREIGN RISK SUBSIDIARIES EMERGING ECONOMIES INTERNATIONAL STANDARDS COST OF CAPITAL BANKING SYSTEMS CAPITAL REQUIREMENTS CORPORATE LOANS FINANCIAL INTERMEDIATION BANK CAPITAL BANK REGULATION INTERNATIONAL AGREEMENTS
spellingShingle	ARBITRAGE BALANCE SHEETS BANK CAPITAL BANK GUARANTEES BANK HOLDING COMPANY BANK LENDING BANK OF ENGLAND BANK PORTFOLIOS BANKING SUPERVISION BANKING SYSTEM BANKS BONDS CAPITAL REQUIREMENT CAPITAL REQUIREMENTS CENTRAL BANK CONSOLIDATED SUPERVISION CONSOLIDATION COST OF CAPITAL CREDIT RATING AGENCIES CREDIT RISK DEBT DISCLOSURE ECONOMIC CONDITIONS ECONOMICS EMERGING ECONOMIES EMU FINANCIAL INTERMEDIATION FINANCIAL REGULATION FINANCIAL STABILITY FOREIGN CURRENCY INFLATION INTEREST RATES INTERNATIONAL BANKS LENDER OF LAST RESORT LENDING INSTITUTIONS LEVEL PLAYING FIELD LIQUIDITY MARKET DISCIPLINE OPERATIONAL RISK PORTFOLIO PRIVATE BANKS PROBABILITY OF DEFAULT RATING AGENCIES RATING SYSTEM RATING SYSTEMS RECESSION RETAIL RETURN ON EQUITY RISK FACTORS RISK MEASUREMENT SECURITIZATION SOLVENCY SOVEREIGN RISK SUBSIDIARIES EMERGING ECONOMIES INTERNATIONAL STANDARDS COST OF CAPITAL BANKING SYSTEMS CAPITAL REQUIREMENTS CORPORATE LOANS FINANCIAL INTERMEDIATION BANK CAPITAL BANK REGULATION INTERNATIONAL AGREEMENTS Powell, Andrew A Capital Accord for Emerging Economies?
relation	Policy Research Working Paper;No.2808
description	The Basel 1988 Capital Accord is arguably the most successful of all recent financial "standards." Although it was designed for internationally active banks in G10 countries, more than 100 countries claim to adhere to it, and many apply the Accord to all banks. Significant changes to this Accord are currently under discussion. The author reviews the current proposals (published in January 2001) from the standpoint of an emerging market. He then addresses how implementation in G10 countries will affect the cost of capital to emerging economies. The new proposals make considerable advances in linking risk and regulatory capital for internationally active banks, especially for their corporate loan book. But the corporate-calibrated internal ratings-based (IRB) approach leads to significant changes in capital requirements and spreads for banks that lend to emerging countries. The author proposes that for sovereign lending, banks should develop internal ratings according to an S&P or Moody's scale, and capital charges be levied at the corresponding weights given by the standardized approach. The author argues that the more detailed and specific the proposals are for G10 internationally active banks, the less relevant the proposals will be for non-G10 countries that wish to implement the new Accord for all banks. Indeed, many emerging countries will implement the 'standardized' approach, in which case, given the limited universe of rated risks, little will change. Alternatively, emerging countries will attempt to implement an IRB approach, but with significant problems implementing and calibrating the parameters-or inappropriate use of G10 calibrations. At the same time, banks in emerging economies remain the most important vehicle for financial intermediation and the appropriate regulation of bank capital one of the most important issues for financial sectors. The author suggests that additional alternatives should be included or, failing that, the time may have come specifically for an Accord for emerging economies.
format	Publications & Research :: Policy Research Working Paper
author	Powell, Andrew
author_facet	Powell, Andrew
author_sort	Powell, Andrew
title	A Capital Accord for Emerging Economies?
title_short	A Capital Accord for Emerging Economies?
title_full	A Capital Accord for Emerging Economies?
title_fullStr	A Capital Accord for Emerging Economies?
title_full_unstemmed	A Capital Accord for Emerging Economies?
title_sort	capital accord for emerging economies?
publisher	World Bank, Washington, D.C.
publishDate	2013
url	http://documents.worldbank.org/curated/en/2002/03/1743999/capital-accord-emerging-economies http://hdl.handle.net/10986/14827
_version_	1764429661747544064

A Capital Accord for Emerging Economies?

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