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Financial Times, May 01, 2003


Basel II sums up the future for credit risk By Charles Pretzlik and Peter Norman


It takes years of learning and a disregard for natural light to make sense of the mathematic equations that underpin the proposed new rules on bank capital.


Yet, for all the complexity of the hieroglyphics, it adds up to one simple purpose: to make the banking system more stable and efficient.


But if the rules' purpose is simple enough, implementing them is not. Banks will need to overhaul their systems and some are not happy about it.


The rules, published this week by the Basel Committee on Banking Supervision in its third and final consultative paper, will replace a set of rules from 1988, so-called Basel I.


. . .The incentive to underestimate credit risk is considerable. For a large bank with risk-weighted assets of ?500bn, cutting the amount of capital by just 0.5 per cent would save it ?2.5bn.


Many could save even more capital quite legitimately. This can be redeployed against new business. It is this which, for all the doubts, makes poring over all those hieroglyphics worthwhile.


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Financial Times, May 01, 2003


US action could jeopardise Basel II - By Charles Pretzlik and Peter Norman


European supervisors warned yesterday that attempts to set new global financial standards were under threat from US moves to allow most American banks to opt out of revised capital adequacy rules.



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