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The Basel Committee on Banking Supervision recommends that the Basel agreements be implemented only by “internationally active” banks, particularly in industrialized countries. Given the underlying spirit of the agreements, it seems unwise to discuss one of the main concerns of the Basel II agreement – credit rating – in a book on banking issues in developing countries. Paradoxically, many banks in developing countries have adopted the agreements and are making progress in implementing aspects of these agreements. Therefore, the credit rating is very relevant to the cause of this book. I have set my goals: the QIS-5 study includes 382 banks in 32 countries outside the United States.6 Among participating banks, the largest internationally active banks, called Group 1 banks, recorded an average capital decline of 7.1% under the AIRB approach. Smaller banks, known as Group 2 banks, which are mainly national institutions, have experienced a much larger decline in minimum regulatory capital (BCBS 2006a). Within Europe7, Group 1 banks recorded an average 8.3% decline in capital under AIRB. For the banks of the European Group 2, the decline in capital under AIRB amounted on average to 26.6%. Analysis qis-5 attributed the sharp decrease in minimum regulatory capital requirements to bank concentrations of retail loans, particularly residential mortgages. Basel II, an extension of Basel I, was introduced in 2004. Basel II included new regulatory additions and focused on improving three key themes: minimum capital requirements, oversight and transparency mechanisms, and market discipline. Given the potential for significant reductions in the minimum capital level for banks that can engage under the AIRB approach, it is important to assess whether or not these reductions are justified by improved risk measurement standards. Many Basel II-related documents and policy discussions strongly believe that the AIRB approach is a rigorously supported standard by scientists for measuring the minimum capital requirements of banks.

Unfortunately, this trust has no place. There is a great deal of evidence that the AIRB framework will under-capitalize credit risks. The Basel agreements are extremely important for the functioning of international financial markets. They can never be constant and must be constantly updated on the basis of current market conditions and lessons learned from the past. In October 1996, the Committee published a report on the supervision of the cross-border banking sector, drawn up by a joint working group of controllers from non-G10 jurisdictions and offshore centres. The document presented proposals to overcome obstacles to effective consolidated oversight of international banks` cross-border transactions. The report was then approved by supervisory authorities in 140 countries and helped to establish links between the supervisory authorities of the countries of origin and host countries. The proposed standards were published by the Committee in mid-December 2010 (and then revised). The December 2010 versions were defined within the international framework of liquidity risk measurement, standards and supervision and Basel III: a global regulatory framework for banks and banks. The expanded Basel framework overhauls and strengthens the three pillars created by Basel II and expands them into several areas. Most of the reforms will be implemented gradually between 2013 and 2019: think tanks such as the World Pensions Council claim that Basel III relies only on the existing regulatory basis of Basel II and develops it without fundamentally questioning its fundamental principles, in particular, the ever-increasing reliance on standardized “credit risk” assessments marketed by two private sector agencies – Moody`s and S-P – to use public order to strengthen practices anti-competitive duopoly.

[35] [36] The contradictory and unreliable ratings of these agencies are generally considered to be an important contribution to the U.S. housing bubble.


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