Basel II Implementation in Asia

Author

Walter Yao

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April 27, 2009

The current financial market turmoil has sparked debates across the globe about the supervision and regulation of the financial services industry. As the Basel II capital framework is implemented worldwide, many critics have highlighted weaknesses underscored by the crisis. The most prominent criticisms of the framework include its lack of an explicit liquidity risk capital charge, its over-reliance on credit rating agencies, and its pro-cyclical nature. As top financial leaders are calling for more drastic measures to revamp supervisory structures, the Basel II standard should continue to evolve. Nonetheless, it is useful to review how Asian financial sector regulators are implementing the framework because the guiding principles behind Basel II, while imperfect, highlight an important step for Asian economies to develop more robust banking systems. This Asia Focus report examines Basel II implementation in Asian economies and discusses key issues and challenges facing Asian banks and regulators.