The Likely Impact of the Basel II Accord on Shipping Finance Dissertation

The Likely Impact of the Basel II Accord on Shipping Finance - Dissertation Example 3 Data Collection and Analysis 31 D) 3.4 Limitations 32 VI Chapter 4: Results 33 A) 4.1 Findings 33 B) 4.2 Alternatives to shipping trade Finance 35 4.2.1 Ship Mortgage Indemnities 35 4.2.2 Residual Value Insurance 35 4.3.3 Boutique Financing 36 B) 4.3 Financial instruments 36 4.2.1 Hedging 37 C) 4.3. Development banks 39 VII Chapter 5: Discussion 40 VIII Chapter 6: Conclusions 42 Reference List 43 List of Figures, List of Tables, and List of abbreviations I Figures Figure 1 7 Figure 2 13 Figure 3 14 Figure 4 18 Figure 5 20 Figure 6 21 Figure 7 26 Figure 8 33 Figure 9 33 Figure 10 34 Figure 11 35 CHAPTER 1: Introduction 1.1 Introduction The Basel Committee on Banking Supervision developed a set of rules in relation to the capital adequacy requirement for banks in 1988 known as Basel 1 which primarily targeted credit risk and which made it a requirement that banks â€Å"hold capital equal at least 8% of the risk-weighted assets† (Fortis, 2008, p.20). Under the Basel I Accord â €Å"...the amount of capital being put aside by a bank as a type of ‘buffer’ for the risk taken was very simple and standardized.† (Fortis, 2008) However, the Basel Committee of Banking Supervision needing a more risk-sensitive approach to capital requirements as well as needing to incorporate â€Å"more advanced modeling and risk management in the regulatory banking system...designed a new worldwide framework† referred to as Basel II which replaced the existing Basel I legislation (Fortis, 2008, p.120). It is held that Basel II and the Capital Requirements Directive (CRD) should enable effective operation within the European Financial Single Market and to enable competition with â€Å"peer institutions on a level playing field.† (Fortis, 2008) Stated as the purpose of Basel II is â€Å"to improve... The main purpose of the research is to present that the Basel Committee on Banking Supervision developed a set of rules in relation to the capital adequacy requirement for banks in 1988 known as Basel 1 which primarily targeted credit risk and which made it a requirement that banks â€Å"hold capital equal at least 8% of the risk-weighted assets†. Under the Basel I Accord â€Å"...the amount of capital being put aside by a bank as a type of ‘buffer’ for the risk taken was very simple and standardized.† However, the Basel Committee of Banking Supervision needing a more risk-sensitive approach to capital requirements as well as needing to incorporate â€Å"more advanced modeling and risk management in the regulatory banking system...designed a new worldwide framework† referred to as Basel II which replaced the existing Basel I legislation. It is held that Basel II and the Capital Requirements Directive (CRD) should enable effective operation within the European Financial Single Market and to enable competition with â€Å"peer institutions on a level playing field.† Stated as the purpose of Basel II is â€Å"to improve the stability and soundness of the financial system by more closely linking capital requirements to risks and by promoting a more forward-looking approach to capital management†. In addition the Basel II has the objective of maintaining the â€Å"aggregate level of minimum capital requirements, while also providing incentives to adopt more risk-sensitive approaches.