THE IMPACT OF THE IMPLEMENTION OF BASEL II

Abstract

The Basel II mandates differentiated principles for backing credit risks with recourse equity of banks. The starting point for determining these capital requirements is the application of external and internal ratings, which means that operational and other banking risks must be analyzed, measured and backed with regulatory capital. What is to be expected of the New Basel Capital Accord (Basel II) and how market participants can be adequately prepared is a new concern in the Singapore market. This paper is an attempt to present preliminary findings on specific account of Basel II in Singapore. This study explores and assesses the likely implications of Basel II on the demand for and supply of capital by looking at how they are preparing themselves to deal with challenges created by the New Capital Accord and what will be the likely impact this accord will have on the market activities as a whole. The Singapore market demonstrates promising potential for real estate securitization as a viable alternative financing tool. An empirical event analysis is also conducted to analyze the effects following the announcement of divestment activities in the disposal of non-core assets in compliance with Basel II regulations. Results have revealed a general trend that the market reaction to banks' divestment has been positive.