The Likely Impact of the Basel II Accord on Shipping Finance - Dissertation Example

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The Likely Impact of the Basel II Accord on Shipping Finance

The main purpose of the research is to present that the Basel Committee on Banking Supervision developed a set of rules in relation to the capital adequacy requirement for banks in 1988 known as Basel 1 which primarily targeted credit risk and which made it a requirement that banks “hold capital equal at least 8% of the risk-weighted assets”. Under the Basel I Accord “...the amount of capital being put aside by a bank as a type of ‘buffer’ for the risk taken was very simple and standardized.” However, the Basel Committee of Banking Supervision needing a more risk-sensitive approach to capital requirements as well as needing to incorporate “more advanced modeling and risk management in the regulatory banking system...designed a new worldwide framework” referred to as Basel II which replaced the existing Basel I legislation. It is held that Basel II and the Capital Requirements Directive (CRD) should enable effective operation within the European Financial Single Market and to enable competition with “peer institutions on a level playing field.” Stated as the purpose of Basel II is “to improve the stability and soundness of the financial system by more closely linking capital requirements to risks and by promoting a more forward-looking approach to capital management”. In addition the Basel II has the objective of maintaining the “aggregate level of minimum capital requirements, while also providing incentives to adopt more risk-sensitive approaches. ...Show more

Summary

The aim of the paper was to determine the impact of Basel II Accord on shipping industry financing. The aim of the accord is to impose a formula that is used by banks to access risk before lending to any organisation. Shipping industry has a unique risk that affects the financial performance. …
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The Likely Impact of the Basel II Accord on Shipping Finance essay example
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