From Basel II to Basel III

In June 2004, the revised framework, International Convergence of Capital Measurement and Capital Standards (Basel II), was ratified. In contrast to demand from the industry, a bank’s use of credit portfolio models was not admitted under Pillar 1. Nevertheless, under the internal capital adequacy assessment process of Pillar 2, portfolio models are permitted and implicitly required for sophisticated banks.1

While many participants in the banking industry were disappointed with this result, the

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