Bank Valuation and Value Based Management: Deposit and Loan Pricing, Performance Evaluation, and Risk, 2nd Edition, 2nd Edition

CHAPTER 13

Capital Regulation (Basel II)

Chapter 12 introduced the Bank for International Settlements (BIS) capital regulations, Basel I. These were progressively applied around the world. However, there was a major weakness with the original BIS ratio: all loans—whatever their maturity or their degree of risk—received an identical risk weighting of 100 percent. Thus, to better relate bank capital to actual risk, a major review took place, leading to revised capital regulations, known as Basel II.¹ First presented in 1999, the Basel II regulations were finalized in June 2004. Although the banking world is moving into Basel III, it is important ...