Basel Accord and the Failure of Global Trust Bank: A Case Study

Abstract

With the implementation of the Basel Accord II in Indian banks, a question has emerged as to how well the accord will be able to fulfill its role of supervision of banks and also the role of checking crisis situation in banks. The role of Basel II can be judged only when one looks into the success and failure of the Basel I Accord and try to find out whether the accord actually led to the crisis in some of the banks, as has been pointed out by some economists, and whether it failed to focus on areas which were causing crisis in banks. The study has taken the case of Global Trust Bank as the focus area, since it was the most prominent example of a crisis situation after Basel I was implemented. By using one of the most popular models of risk analysis, CAMEL model, it has been concluded that the crisis was not the effect of strict capital norms under Basel I, but nevertheless, it highlights the inability of the accord to take into account the operational risk which seems to be the main reason for the liquidation of the bank.