Blaming the EU for this is pure piffle. The UK has been a big player in the Basle/Basel accords student loans, and indeed the standing committee at the BIS responsible for making the recommendations on regulatory capital was known as the Cooke Committee after the chairman seconded from the Bank of England. To think that the UK would in some way implement less than the full recommendations would have been unthinkable. The EU directive simply aids the UK by ensuring that any bank operating in the EU is capitalised according to the same rules as all other EU banks.

If there is a problem with the system it lies with the detail of the Basel II accord and valuations of risk and not with EU legislation or mark to market provisions.

If assets and liabilities are marked to market then the rest of the world has a better idea of the risk inherent in a bank's balance sheet, but in reality all they have is the value that is potentially recoverable at that point in time. No idea is given about extent of the full potential loss that might occur due to future market changes real estate agents (e.g. big losses triggered by credit default swaps or out of of the money put options written sold by the bank which may create losses very rapidly on small market changes).

The first Basel accord set out a very broad brush approach to allocation of capital on the basis of credit risk, categorizing assets to various groups of risk weigthing percentages and requiring the bank to hold equity equal to 8% of risk weighted assets. It was a bit of a clunky system but it seemed to work. However, banks told their regulators that the Basel I categories did not properly reflect the risk in their assets and they wanted something more scientific so the Cooke Committee came up with Basel II.

The problem with Basel II is that it generally requires less capital than Basel I mortgage rates, because the banks will do more of the transactions that get a better treatment under Basel I than Basel II, hence more complex transactions on the same capital, but whilst the risk valuation methodologies give a good estimate of current risk, they do not necessarily predict rapid changes in exposure if market conditions change. It is a bit like the difference between a heavy duty diesel engine and a finely tuned racing car engine that may go out of tune mortgage loans.

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liabilities are marked to market then the rest of the world has a better idea of the risk inherent in a bank's balance sheet, but in reality all they have is the value that is potentially recoverable at that point in time.Vehicle Leasing UK

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