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Abstract
The basic problem, putting aside the politics of Basel II, of which of course there is plenty, is that that Basel Committee has tried to accomplish too much in Basel II. By trying to create a capital framework that is fully sensitive to all types of banking risk and allows banking organizations to customize their capital requirements, what the Basel Committee instead has created is a regime that is impressively obscure, potentially anticompetitive - just ask the smaller non-global banks, which feel that the IRB approach will result in lower capital requirements for the biggest banks and give the latter a competitive leg up - and by all accounts virtually impossible to solve: Fermat's Theorem all over again! One need look no further than Basel IA, which is a more modest, but workable, attempt to accomplish the laudable goals of Basel II. Although people may argue with the details of Basel IA, and they certainly will do so, the fact remains that a more straight forward regulatory capital regime such as proposed Basel IA stands a much better chance of being understood and properly applied both by the banking agencies and their constituent banking organizations.