Basel II accord and its effects on Turkish banking sector

SARI, Sanem. Basel II Accord and Its Effects On Turkish Banking Sector, Graduate Thesis, Ankara, 2008.The terms of `risk? and `risk management? are the central elements of modern economy and particularly financial system. In the modern financial system the central role of financial mediation function is about to be replaced by the speculative fund flows and due to this fact risk management has become far more important than before.Bank of International Settlements (BIS), which has evolved to a standard setting authority with regard to risk management in the banking sector, probably a more globalised industry than any other and the driving force of the globalisation itself, revised the capital accord, known as `Basel I? and considered to be an internationally recognised standard of risk management. The outcome is a new set of risk management standards in the banking industry, called Basel II. Basel II, like the former one has gained worldwide recognition very rapidly. For the time being most of the developed countries have already implemented the new regulations on risk management based on the new capital accord and the rest are taking the necessary steps to comply with Basel II.It is obvious that Basel II Capital Accord, which is supposed to be fully implemented in a future date, will have both positive and negative impact not only on banking but the whole non-financial industry as well. Whatever the impacts it will have, Basel II is deemed to be useful and necessary to ensure a sustainable satisfactory economic performance of banking industry and the national economy as a whole.In the light of the findings derived from the quantitative impact study conducted by BDDK with the participation of nearly all banks operating in Turkey, it can be concluded that the application of principles suggested by Basel II, will result in a considerable decrease in the capital adequacy ratio on a consolidated basis. Nevertheless they would no doubt end up with a capital adequacy ratio far higher than the critical level (%8).