A Study Of Influence And Countermeasure That Methodologies Calculating Credit Risk In Basel II Take On Foreign Banks In China

In April 2003 the Basel Committee issued a third consultative paper on the New Basel Capital Accord (also known as Basel II), which will replace the old Basel Capital Accord that issued in 1988. Because the leading status of the Basel Capital Accord in global banking risk management, the issue of the New Basel Capital Accord will bring huge transformation on risk management, capital collocation and competition capability of international banks. Although our country will not implement Basel II, the foreign banks in our country may adopt methodologies calculating their capital requirements for credit risk, therefore, Basel II can have affect on capital requirements and banking business expansion of foreign banks in China, and make the competition severer between foreign banks and native banks. Therefore, It has great meaning that researching methodologies calculating credit risk in Basel II and their impact for ameliorating risk management in native banks and facing challenge from foreign banks in China.There are three parts in my paper:Firstly, I introduce the main framework of Basel II and the three methodologies calculating credit risk, that is, Standardized Approach, Internal Rating Based Approach Foundation and Internal Rating Based Approach Advanced, analyzing their main content, use range merit and shortcoming.Secondly, I analyze the influence which methodologies calculating credit risk take on bank capital requirement and business expansion of foreign banks in China. This part is key part in my paper, which contains three segments. Above all, I clarify the affect of methodologies calculating credit risk on capital requirement for banks that are different area and different scale. Following, I analyze the change of capital management and business expansion of banks resulting from the alteration of capital requirement. Finally, I study the competition in the management policy direction and client category choice between foreign banks in China which adopt methodologies calculating credit risk and native banks, combined with the general situation of foreign banks in China.Thirdly, on the base of above analysis, I put forward some countermeasure and advice from the points of native banking, China banking regulatory commission, the people's bank of China and the bank association.