Jamilu Auwalu Adamu

ABSTRACT

Banks and Companies play an important role in the entire world economy. On December, 2009, the Basel Committee on Banking Supervision has proposed a package to strengthen global capital and liquidity regulations with the goal of promoting a more resilient banking and economic sector. The committee proposed a series of measures to promote the buildup of capital buffers in good times that can be drawn upon in periods of stress. It would be recalled that the Probability of Default is the major component when determining (i) Capital Requirements under Basel II (Now Basel III) (ii) Expected Loss (iii) Risk Weighted Asset (iv) Request of Loans (v) Rating Estimation (vi) Pricing of Credit Derivatives. The false estimation of probability of default leads to unreasonable rating; incorrect pricing of financial instruments and thereby it was one of the causes of the recent global financial crises