Despite the standards set by Basel I, it faced many criticisms such as the fact that it did not cover countries outside the member states, its implementation and the fact that the jargon used created problems for laymen to decipher its meaning.
Due to the financial turmoil in the last decade of the twentieth century and also because of the drawbacks of Basel I, Basel II was introduced as a new and improved model of its predecessor. Whereas Basel I asked the lending authorities to apply one risk set to the restricted amount of asset categories for the purpose of calculation of a minimum amount of capital; Basel II gives the freedom to a select number of nations to apply unique paradigms for calculation of minimum capital. Basel II also requires the lenders to adopt a framework within their institutions that takes the issue of risk management to all levels of the hierarchy (Council of Mortgage Lenders, 2009).
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