The Basel Committee proposed a series of recommendations which
enable to measure the credit risk in a more pertinent way, by
taking into account the quality of the borrower, including by
the intermediary of an inner rating system peculiar to each
establishment. The Basel II norms form a cautious devise destined
to understand better the banking risks and mainly the credit
risk or counterparty and the demands in equity. Those directives
have been prepared since 1988 by the Basel Committee, under
the authority of the “central bank of central banks”:
the Bank of International Regulations and it led to the publication
of the CRD Directive.
Basel II is in line with a worldwide approach of regulation
of the banking profession. The aim is to prevent from bankruptcy
thanks to a better adequacy between equity and the risks incurred.
To reach this aim, the Basel agreements fix the rules for a
better evaluation of the risks. The Basel II norms should replace
the norms set by Basel I in 1988 and it notably aim at the setting
up pf the ratio McDonough – the new ratio of solvency
– destined to replace the ratio Cooke.( McDonough : name
of the president holding office of the Committee during the
process of the settlement of the Agreement, William J. McDonough).
Following the same pattern, new norms, Solvency II, are being
discussed for insurance and reinsurance companies.
• Basel II deals with the following subjects:
• The bank acting as an assignor
If the bank that acts as an assignor wants to take advantage
of the securitization in order to liberate some capital, the
transfer has to be eligible for a clean break.
• The bank acting as a recoverer
When the asset of securitisation is constituted by claims, a
recoverer has to be chosen to insure the debt collection in
due time and the terms agreed.
• The bank acting as an investor
If the bank purchases stocks issued by a vehicle ,Basel II offers
to leave it to major rating agencies in order to determine the
level of risk by range and offers a scale to convert the mark
in balance.
• The bank and the “revolving securitisation”
Basel II requires, from the assigning bank, to keep a regulatory
capital equals to the sum of everything the bank might have
kept without the securitization operation increased from the
amount of all the credit raisings.
• The bank and the synthetic operations
We can liberate some capital only if the management of this
type of tool at a double and operational level is of quality.
