Discuss were there any changes to the Basel Accord after the financial crisis of 2007-2009?

 

In response to the financial crisis which started in mid-2007 international financial regulators have launched a far-reaching agenda for reform of the global financial architecture. This agenda includes banks' capital adequacy and risk management, accounting rules, the institutional and geographical coverage of the regulation of financial firms, a resolution regime which facilitates the orderly cross-border winding-down of failed banks, registration and enhanced supervision of credit rating agencies, codes for the remuneration of bank staff, and greater attention to the macroprudential dimension of regulation.

A central role in this agenda is accorded to Basel II, an agreement on the minimum regulatory capital and risk management of banks which intersects with a great many of the issues covered by the international agenda for regulatory reform. The drafting of Basel II by the Basel Committee on Banking Supervision (BCBS) began almost a decade ago and its introduction is already under way in many countries (see Box 1). However, experience of the crisis has led to the conviction that important parts of the agreement need rethinking and revision, in particular those concerning the scale and quality of banks' overall capital levels and the allocation of capital to exposures whose riskiness was inadequately assessed prior to the crisis. 

Several commentators have raised the question whether Basel II has contributed to the outbreak of the financial crisis. The collapse in the value of certain financial assets, particularly securitized categories, and the associated seizing-up of major parts of the financial markets originated in the United States, subsequently spreading outwards to other countries and markets, mainly in Europe. However, in the United States only in July 2007 did the four banking regulators (the Federal Reserve, the Office of the Comptroller of the Currency, the Office of Thrift Supervision, and the Federal Deposit Insurance Corporation) announce agreement on the implementation of Basel II. Thus the introduction of Basel II came too late to have influenced the crisis. However, the lack of adequate rules on securitization in Basel I did help to facilitate practices whose adverse consequences only became fully evident during the crisis.