Hi Zarathustra,
Basel II states (it's a little lengthy):
6. Capital helps protect individual banks from insolvency, thereby promoting safety and soundness in the overall U.S. banking system. Minimum risk-based capital requirements establish a threshold below which a sound bank’s risk-based capital must not fall. Risk-based capital ratios permit some comparative analysis of capital adequacy across banks because they are based on certain common assumptions. However, supervisors must perform a more comprehensive review of capital adequacy that considers the risks that are specific to each individual bank, including those not incorporated in risk-based capital requirements. In short, supervisors must ensure that a bank’s overall capital does not fall below the level required to support its entire risk profile.
7. Supervisors generally expect banks to hold capital above their minimum risk-based capital levels, commensurate with their individual risk profiles, to account for all material risks. Going forward under the advanced approaches rule, supervisors will continue to review the overall capital adequacy of any bank through a comprehensive evaluation that considers all relevant available information. In determining the extent to which banks should hold capital in excess of risk-based capital minimums, supervisors will consider: the combined implications of a bank’s compliance with qualification requirements for regulatory capital standards; the quality and results of a bank’s own process for determining whether capital is adequate (the ICAAP); and the bank’s risk-management processes, control structure, and other relevant information relating to the bank’s risk profile and capital level.7 This review is consistent with current supervisory practice, under which the agencies assess a bank’s overall capital adequacy through a comprehensive evaluation of all relevant information.
8. The supervisory review process assesses whether a bank has a satisfactory process to determine that its overall capital is adequate, and that the bank maintains adequate capital on anongoing basis, as underlying conditions change. For example, changes in a bank’s risk profile or in relevant capital measures are areas of particular focus that are effectively addressed through the supervisory review process. Generally, a bank should hold more capital for material increases in risk that are not otherwise mitigated, unless the bank already holds capital at a level exceeding what its internal processes and supervisors would regard as adequate. Conversely, a bank may be able to reduce overall capital (to a level still above regulatory minimums) if the supervisory review supports the conclusion that the bank’s inherent risk has materially declined or that it has been appropriately mitigated.
9. As a result of its comprehensive supervisory review, a bank’s primary Federal supervisor may take action if it is not satisfied that capital is adequate. The primary Federal supervisor may require the bank to take actions to address identified supervisory concerns, which may include requiring the bank to hold additional capital to bring capital to levels that the supervisor deems commensurate with the bank’s risk profile. In addition, the primary Federal supervisor may, under its enforcement authority, require a bank to modify or enhance risk- management and internal-control processes, reduce its exposure to risk, or take any action deemed necessary to address identified supervisory concerns.
Identifying and Measuring Material Risks
• Credit risk: A bank should have the ability to assess credit risk at the portfolio level in addition to the exposure or counterparty level. In making this assessment, the bank should be particularly attentive to identifying any credit risk concentrations and ensuring that their effects are adequately assessed. The bank should consider the various types of dependence among exposures, and the credit risk effects of extreme outcomes, stress events, and shocks to assumptions about portfolio and exposure behavior. The bank also should carefully assess concentrations in counterparty credit exposures, including those that result from trading in less liquid markets, and determine the effect that these exposures might have on capital adequacy.
Among others.... I'm still reading.
Best regards,
Steve
[QUOTE=Zarathustra;33415]THE *REAL* REASON FOR THE SUDDEN RUSH FOR BAILOUT? (BASEL-II)
http://www.rumormillnews.com/cgi-bin...gi?read=132199
Why the Crooks (Fed) are in a Panicked Rush
Why the big panicked rush to pass the bailout? Two clues:
1.) the U.S. fiscal year ENDS on Sept. 30th and a NEW one starts on Oct. 1st. and
2.) The Basel-II deadline for U.S. banks to be "Basel-II compliant," originally Sept. 1st, must surely come due on Oct. 1st, 2008.