Potential Issues from Basel II and Basel III

Abstract

The evaluation of the effectiveness and superiority of Basel II compared to Basel I in the previous chapter foreshadowed a series of problems that arose during Basel II implementation. This chapter explores these issues, including alleged implementation burden due to the complex nature of its underlying risk-assessment methodology and strict data requirements; the possibility of competitive disadvantage deriving from the adoption of the IRB approach; pros and cons of retaining a system of external ratings within Basel II; the problematic nature of securitisation; cross-border supervision issues; and potential problems coming out from pillar two risk requirements.