If the Basel Committee on Banking Supervision’s proposals for a new capital adequacy framework were applied raw tomorrow, they would be a disaster. Nearly everyone agrees about that.
But the draft of that framework, unleashed on the banking sector in June last year, has certainly stimulated active thought. Bankers, regulators and credit analysts have wrestled with the conundrum: how do you get a fair assessment of a credit portfolio, in order to apply a capital charge to it, consistent enough to encourage a level playing field?
Credit rating agencies at first expected a bonanza, with a heavy increase in demand for their services.
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