Default dilemmas

The US formula for determining downturn loss given default under Basel II has been criticised by banks as too conservative. Some risk managers claim it could derail the objective of creating a level playing field across jurisdictions. Ashish Dev and Zailong Wan look at the evidence

The implementation of Basel II in the US stands apart from the approaches taken by regulators in other parts of the world. While the differences are numerous and have emerged from many directions, two issues have predominated among large, internationally active US banks. First, risk managers claim the US proposals are overly conservative and put domestic banks at a competitive disadvantage compared with their international counterparts. Second, it is argued that the retention of an overall