Subprime crisis throws up doubts on effectiveness of Basel II Accord

NEW YORK - "Basel II has completely failed in any regard to address the challenges posed by the sub-prime meltdown," Lars Toomre, president of risk consultancy Toomre Capital Markets, has said. He was echoing questions being raised on Wall Street on the effectiveness of Basel II in the modern market, as banks and traders look around for someone or something to blame.

Based on concepts developed in the mid-1990s, critics are arguing that the Basel II Accord is out of touch with today's markets, particularly in respect of structured products.

At the core of the crisis was the bundling of sub-prime mortgages into collateralised debt obligations (CDOs), which were then underwritten by investment banks and sold to asset management firms, hedge funds and other investors.

Under Basel II, some packaged assets are treated as lower risk products as bundling assets