Did Bank Capital Regulation Exacerbate the Subprime Mortgage Crisis?

Table 3

Continued differences between Basel I and II.

Basel I	Basel II
Not risk sensitive; no reliance on risk ratings or maturity.	Risk sensitive
Based on simplistic or crude categories of obligors and assets with fixed risk-weighted asset percentages; no minimal recognition of risk mitigation	Based on risk ratings, maturity substantial of recognition risk mitigation
Calculated in aggregate	Calculated at facility/transaction level
No acknowledgment of operational risk as a separate risk discipline/category	Operational risk as a separate discipline/category
No relationship with risk capital	Alignment with risk capital, advanced risk management concepts
Largely finance-driven off of finance systems	Operationally intense–places major emphasis on rigorous risk management processes, models systems/technology and integration of risk/finance systems and processes