There is no doubt that BaselII has enlightened bankers, s and risk management pundits in terms of measurement and management of risk. But still there are some difficulties in the context of its implementations. BaselII is so versatile that all the countries could make their own version of the Accord. This is true because without its flexibility, most of the countries wouldnt have endorsed it. While BaselII is going to be effective from January 1, 2007 in many countries like the EU countries, the US has postponed its date of implementation to 2008.

The chief reason for deferment is the regulator's worry that Basel-II implementation will reduce capital required for the US banks. According to Quantitative Impact Study 4 (QIS 4), after Basel-II implementation, the US banks could get relief of about 17% capital required as compared to the current regime of Basel-I. While Basel committee has always insisted that there shouldn't be reduction in capital requirement after the implementation of the new Accord. And this raises the question of robustness of Basel-II.

"The current prevailing Prompt Corrective Action (PCAs) rules in the US are more effective than Basel-II and then why the US go for an Accord which will weaken its financial system," said a senior banker. The capital required under PCA for Tire I is 4%. "Large banks going to adopt the new Accord could achieve this ratio with lower capital than currently required under Basel-I, "said Professor George G Kaufman of Loyola University in Chicago in one of his papers.

The evidences show that if the leverage ratio declines below 6%, bank failures increase, nonetheless there is no evidence about the relationship between risk-based capital and profitability.

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