Homework 1 - First Home Assignment 1. The Basel Accords...

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First Home Assignment 1. The Basel Accords were developed by the Basel Committee on Baking Supervision in order to standardize bank regulations pertaining to risk. The Basel I Accord was the first capital accord that stated a minimum amount of equity for banks. Its goal was to minimize credit risk. If a financial institution incurred unexpected losses or had sudden obligations to meet, they would always have enough capital on hand. However, there were drawbacks to this accord. Certain institutions were allowed to hold capital reserves that were too low and they were generally stimulated to take improper risks. The Basel II Accords, published in 2004, were designed to improve upon Basel I, but instead, they caused a financial crisis in 2007. Although it brought in other important factors like market and operation risk, the models for determining these risks were very poor. The revisions to the Basel II Framework implemented more accurate way of calculating risks. For example, default risk and migration risk would now be taken into account with the addition of an
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This note was uploaded on 01/27/2011 for the course MGMT 4370 taught by Professor Gupta during the Fall '10 term at Rensselaer Polytechnic Institute.

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Homework 1 - First Home Assignment 1. The Basel Accords...

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