Basel II “doubly flawed”, according to UK researcher

Basel II is “doubly flawed” in comparison with Basel I, because external credit rating agencies and in-house models are used to set risk weights.

In a post on the Financial Times’ Alphaville blog, Lombard Street, a UK research company, said: “The credibility of rating agencies has been so damaged of late that the foundations of the standardised approach have been undermined.

Basel II’s standardised approach uses weights based on credit rating agencies’ assessments, while the advanced internal ratings-based (IRB) approach enables banks to use in-house models to do this.

Lombard Street also criticised the legitimacy of the advanced approach