South African Journal of Economic and Management Sciences
On-line version ISSN 2222-3436
ESTERHUYSEN, Ja'nel; VAN VUUREN, Gary and STYGER, Paul. The effect of stressed economic conditions on credit risk in Basel II. S. Afr. j. econ. manag. sci. (Online) [online]. 2011, vol.14, n.2, pp. 122-137. ISSN 2222-3436.
The robustness of the Basel II accord in protecting banks during volatile economic periods has been challenged during the ongoing credit crisis. In particular, advanced approaches to measuring and managing credit risk have drawn criticism for being both irrelevant and too complex. Despite accusations that the accord was largely responsible for the crisis, this article explores which of Basel Il's credit risk approaches were more successful in allocating capital. It was found that, in general, compliance with Basel II actually protected banks during the crisis, with simpler approaches enjoying greater success than more advanced ones in protecting banks against credit risk.
Keywords : credit risk; loss and frequency distributions; credit crisis; Basel II.