Basel II
BASEL Accord Back ground
The Basel Capital Accord was concluded by the Basel
Committee on Banking Supervision (BCBS) on Ju...
PILLAR 1 : MINIMUM CAPITAL REQUIREMENTS
Standardized Approach
 The standardized approach sets out specific risk

weight for certain types of credit risk.
 Banks...
Internal Rating based Approach
 The more advanced the approach, the higher is the

responsibility and the implementation ...
PILLAR 2 : Internal & External Supervision
Following are the four key concepts of supervisory review:
Principle 1: Banks should have a process for assessing risks
pr...
5 Features of ICAAP
 Board and senior management oversight
 Sound capital assessment

 Comprehensive assessment of risk...
PILLAR 3 : Disclosure towards financial market
Effective disclosure is essential to ensure that market
participants can be...
Types of disclosures
 Qualitative Disclosures

Qualitative disclosures providing a summary of
the general risk management...
Basic calculation of capital
required
Basel ii
Basel ii
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Basel ii

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Basel ii

  1. 1. Basel II
  2. 2. BASEL Accord Back ground The Basel Capital Accord was concluded by the Basel Committee on Banking Supervision (BCBS) on July 15, 1988 in the Bank of International Settlements head office located in Basel. The accord agrees upon a minimal capital regulation framework for internationally active commercial banks so as to reduce the risk of the international financial system. Revised Basel II was introduced in June 2006
  3. 3. PILLAR 1 : MINIMUM CAPITAL REQUIREMENTS
  4. 4. Standardized Approach  The standardized approach sets out specific risk weight for certain types of credit risk.  Banks that decide to adopt the standardized ratings approach must rely on the ratings generated by external agencies.
  5. 5. Internal Rating based Approach  The more advanced the approach, the higher is the responsibility and the implementation cost for the bank.  Once a bank chooses to apply an internal-ratings- based approach for a part of its portfolio, it is expected to extend it across the whole banking group.  For exposures in non-material business units and asset classes, the implementation of the IRB approach may not be cost efficient.
  6. 6. PILLAR 2 : Internal & External Supervision
  7. 7. Following are the four key concepts of supervisory review: Principle 1: Banks should have a process for assessing risks profile and a strategy for maintaining their capital levels. Principle 2: Supervisors should review and evaluate banks’ internal capital assessments and strategies as well as their ability to monitor and ensure their compliance with regulatory capital ratios. Supervisors should take appropriate supervisory action if they are not satisfied with the results of this process. Principle 3: Supervisors should expect banks to operate above the minimum regulatory capital ratios and should have the ability to require banks to hold capital in excess of the minimum. Principle 4: Supervisors should seek to interfere at an early stage to prevent capital from falling below the minimum levels required to support the risk characteristics of a particular bank.
  8. 8. 5 Features of ICAAP  Board and senior management oversight  Sound capital assessment  Comprehensive assessment of risks  Monitoring and reporting  Internal control review
  9. 9. PILLAR 3 : Disclosure towards financial market Effective disclosure is essential to ensure that market participants can better understand banks’ risk profiles and the adequacy of their capital. It is important that disclosures are transparent and easily comparable among financial institutions such that the market mechanisms can work efficiently. All material information must be disclosed Too detailed disclosure on customers, products, methodologies or systems may weaken the competitive position of some banks,
  10. 10. Types of disclosures  Qualitative Disclosures Qualitative disclosures providing a summary of the general risk management objectives and policies which can be made annually  Quantitative Disclosures These disclosures are required to be made at least twice a year.
  11. 11. Basic calculation of capital required

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