Basel II at the very basic level consists of the Standardized Approach (SA) which recognizes and defines various asset buckets and assigns them risk weights in accordance with the type and nature of corporate issue and other transactions and delegating its qualitative assessment to external raters. The matrix of risk buckets and weights is considered to have added excessive complexity for less sophisticated banks.
The linkage and delegation of quality assessment to external ratings, while understandable, lends excessive confidence on the objectivity and soundness of rating agencies which, in at least developing countries has only thus far rated a small proportion of corporates and issues.