PhD ThesisBasel II regulations have been implemented in Bahrain since 2007. I worked as the Head of
Group Risk Management in a Bahraini multinational bank with 10 subsidiaries in 10 countries.
While carrying out these roles, numerous examples of misalignment, irrelevance, and
impracticality were found, and various gaps between cases in practice and what is stipulated and
implemented by the regulator within the framework of Basel II were identified. I became
interested in finding out why Basel II regulations failed to detect triggers of the 2007 crisis ahead
of time and how successful was Basel II in ameliorating negative repercussions of the crisis. The
foremost important question was “Was Basel II the right choice of regulations for banks and the
banking system in the countries in which they were adopted?”
There are numerous studies within the field of banking regulations and supervision on banking
crises from regulators and standard setters’ perspective, but little has been written on the subject
from bankers’ perspectives. More precisely, little has been written on what exactly constitutes
efficient or inefficient regulations from bankers’ perspectives rather than from regulators,
standard setters or academic perspectives.
The above questions motivated us to study the structure, design, objectives and implementation
of Basel II in Bahrain. An investigation carried out from the perspective of institutions being
regulated via questionnaires, one-on-one interviews, and examination of banks’ annual reports.
The purpose of this study is to assess whether the implementation of Basel II is an efficient or
inefficient regulation. The study aims to provide the banking regulator in Bahrain with
recommendations, solicited from within the banking system that would help the regulator to
review its Basel II regulations and supervisions approach. An ethnographic account of the views,
experience, and recommendations of the bankers are used to assess Basel II regulations and
supervision in the country.
The study found that the general perception of the interviewees and the survey’s respondents that
Basel II regulations do not help banks withstand financial crises, improve risk management
practices, reduce systemic risk, or improve international competitiveness. Furthermore, the study
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found that the regulator ignored the idiosyncratic nature of the banking system and its
constituents while implementing Basel II regulations.
In light of the findings, the study offered several recommendations to the banking regulator in
Bahrain. The regulator should, prior to adopting a regulatory tool and imposing it on banks, study
the relevance and appropriateness of this tool with respect to the banks in the country. While
designing its supervision program, the regulator should consider the idiosyncratic risks, financial
performance, organizational structure, governance, and business model for each bank. In
addition, the regulator should not rely on the implementation of Basel II to introduce risk
management practices at a bank or prevent exposure to the financial crisis. The regulator should
adopt tools such as stress testing for each bank and aggregate stress testing of the whole system
in order to foresee and prepare for financial crises