Each National Banking System And Each Class Of Bank Within It Has A Different

Each national banking system and each class of bank within it has a different track record of default and of recovering loan losses, and faces different operational and legal risks. Thus the only way to deal with these inconsistencies is to allow regulators to adjust the rules. The good thing with the framework is that it allows for adjustments to be made to the rules.
There is also a pillar 3: reliance on disclosure by banks and market reaction to it as a means of discipline. This too is already bearing an increasing weight. Banks have been under more pressure from rating agencies and from threats to their sources of funding than they have been from regulators to show that they are aligning themselves with Basel 2.
Conclusion
The original Basel Accord helped to strengthen the soundness and stability of the international banking system as a result of the higher capital ratios that it required. It also helped in enhancing the competitive equality among internationally active banks. In addition, it established minimum levels of capital for the internationally active banks, incorporating off-balance sheet exposures and a risk weighting system aimed in part at ensuring that banks were not deterred from holding low risk assets. From the preceding paragraphs it can be said that whilst Basel 1 (1988 Basel Accord) set up to provide an appropriate regulatory measure for banks, however, due to the presence of inherent weakness of inappropriate risk weighting it was not meeting its purpose. To provide a solution to the above problem Basel 2 came into being, which can be seen as the next step to managing risks and providing a more stable financial system internationally. Thus in conclusion it can be said Basel 1 has been the foundation of Basel 2 and the factors have contributed in providing a better framework for Banking Regulation and Supervision.
BIBLIOGRAPHY
Gwartney, James D., Stroup, Richard L., and Sobel, Russell S., Economics Private and Public Choice, (2000), Ninth Edition, The Dryden Press.
Howells, P and Bain, K, The Economics of Money, Banking and Finance, (2002), Prentice Hall
Lumsden, K, Economics, (2003) Pearson Education
Mishkin, F. The Economics of Money, Banking and Financial Markets, (2004), Seventh Edition, Pearson Addison Wiley
Taylor, John B., Principles of Economics, (1998), Second Edition, Houghton Mifflin Company
'A New Capital Adequacy Framework' (June 1999) Consultative Paper issued by the Basel Committee on Banking Supervision
'UK Implementation of the new Basel and EU capital adequacy standards' (July 2002) Financial Services Authority, Discussion Paper.
Websites
www.frbsf.org/econsrch/wklyltr/wklyltr99/el99-23.html
[The Basel Proposal for a New Capital Adequacy Framework, July 30, 1999]
www.economist.com
www.ft.