Answer to Question #266669 in Finance for Paige Connor

Question

1. Review the Credit Risk Management guidelines issued by any two Central Banks. Highlight the main elements and compare with Basel guidelines on credit risk management.

2.

Comment on the major challenges to Basel II implementation in the Caribbean in relation to credit risk management

Answer 1

1.

The Australian Reserve Bank credit management guideline is provided with a strict set of eligibility criteria to its assets and those of its counterparts with whom they are willing to transact.

In America, the Federal Reserve requires that depository institutions and other entities that borrow credit provide collateral for the loans and be of sound financial condition.

The two countries have ensured that strict guidelines are put in place to mitigate credit risk. Similar to the revised version from the Basel Committee on banking supervision, the banks operate under a sound credit granting process and have established an appropriate credit risk environment.

2.

One of the challenges of implementing Basel II in the Caribbean is the requirement to train the staff. The challenge also extends to educating the industry on how to assess sophisticated methodologies.

Another challenge is promoting a culture of disclosure in banks and educating depositors to embrace the concept of disclosure which in turn requires a legal framework to control the disclosure process.