(ask)Basel II Accord

[The Rock]

Hi, I'm new here.

I don't understand about Basel II accord

Is there anyone here who want to explain it to me clearly?

[Jordan]

It's promoted as a way of increasing bank stability. It is a common set of rules for the determination of risk, that when applied will advise a bank about how much asset should be set aside to cover that risk. It is also to be used as a guide for regulators in order that they can determine whether or not a bank is pushing the envelope.

Different central banks around the globe are implementing Basel II as they see fit in the time-frame they see fit.

It may well cause some degree of credit contraction as a bank holding more in reserve necessarily lends much less.

There are many details and links on http://en.wikipedia.org/wiki/Basel_II

[The Rock]

I still don't understand about risk weighting. It said that short-term goverment bond have 0% risk weghting, it means banks can lend as much money as possible if they have that goverment bond. For residential mortgages that have 50% risk weigthing, banks can lend 2 times of the value of mortgage bond that they are currently holding. Am I correct?

[Jordan]

I still don't understand about risk weighting. It said that short-term goverment bond have 0% risk weghting, it means banks can lend as much money as possible if they have that goverment bond. For residential mortgages that have 50% risk weigthing, banks can lend 2 times of the value of mortgage bond that they are currently holding. Am I correct?

Hi Rock, my answer is I dunno.  You may very well be right.  I haven't read much of Basel II, I've my fingers in too many pies. Please do study it more and post your thoughts on it.  Others will come along and join the discussion sooner or later.

Cheers,

Tyler