Basel II And Risk Sensitivity

Breadth of Coverage

The biggest change in the extent of risk in Basel II tercover are additional operational risks. Various types of risks included in operational risk are:
transaction, execution, Business Interruption, settlement and fiduciary risks
People, poor management and inadequate supervision risks
Criminal, fraud, theft and rogue trader risks
Relationship and customer risks
Fixed cost structures, lack of resources, technology and physical assets, risks
Compliance and legal / regulatory risks
Information risk

Basel II also makes the Pillar 2 and 3 as an inseparable part of the process of determining a bank's capital ratio. Pillar 2 in bank supervisors are expected to introduce other risks faced by the possibility of a bank.
Definition of operational risk in Basel II is not comprehensive, because in reality there are significant risks that are not included are: business risk, strategic risk and reputation risk.

Depth of Coverage
Besides the broad range of risk, the Basel II risk dicover also more depth, particularly in credit risk.
Basel I
weight risk is very simple to use depending on the type of asset and the borrower (associated with country risk and the types of institutions or OECD Non-OECD.
Basel II:
weighting of risk that are used based on the quality of the debtor, and is supported by term loans and guarantees quality
allows the use of two approaches to determine the risk weighting of assets (RWA), namely:
- The Standardized Approach (change from 'grid' approach used in the Basel I → See 'Current Exposure Method and The Original Exposure Method in Chapter 2
- The Internal Rating-Based Approach
In this approach, the bank developed a grading of internal models to determine the creditworthiness of the debtor.
Both approaches have much in common with the way agencies do grading on the issuance of bonds. But the criticisms of Basel I as at least grade of credit risk, where this is in contrast with many of the grade range used by the agency.
If the bank chose IRB approach, the number of grade determined by the bank itself (but the bank supervisors have wanted at least 8 grade).
When used Standardized approach, the 'grid' of risk weight calculation in accordance with Basel I. This approach allows the grouping of inter-grade risk weight, but with the difference between the different assets, as Basel I.