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Basel iii
Basel iii
Basel iii
Basel iii
Basel iii
Basel iii
Basel iii
Basel iii
Basel iii
Basel iii
Basel iii
Basel iii
Basel iii
Basel iii
Basel iii
Basel iii
Basel iii
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Basel iii

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  • 1. An Overview Of the BASEL iii Presented by: Rana Faisal Ali Wajahat Hussain Muneeb Rana Azhar Sadiq
  • 2. Introduction: • Basel is a city in Switzerland which is also the headquarters of Bureau of International Settlement (BIS). • BIS’s common goal:  financial stability  common standards • BIS have 27 member nations in the committee.
  • 3. Basel – I Norms In 1988, the Basel I Capital Accord was created. The general purpose was to: 1. Strengthen the stability of international banking system. 2. Set up a fair and a consistent international banking system in order to decrease competitive inequality among international banks.
  • 4. Limitations of Basel – I Norms • Limited differentiation of credit risk • Static measure of default risk • No recognition of term-structure of credit risk • Simplified calculation of potential future counter party risk • Lack of recognition of portfolio diversification effects
  • 5. Basel – II Norms Basel – II norms are based on 3 pillars: • Minimum Capital – Banks must hold capital against 8% of their assets, after adjusting their assets for risk • Supervisory Review – It is the process whereby national regulators ensure their home country banks are following the rules. • Market Discipline – It is based on enhanced disclosure of risk
  • 6. Pitfalls of Basel – II norms • Too much regulatory compliance • Over Focusing on Credit Risk • The new Accord is complex and therefore demanding for supervisors, and unsophisticated banks • Strong risk differentiation in the new Accord can adversely affect the borrowing position of risky borrowers
  • 7. Advantages of Basel II over I • The discrepancy between economic capital and regulatory capital is reduced significantly, due to that the regulatory requirements will rely on banks’ own risk methods. • More Risk sensitive • Wider recognition of credit risk mitigation.
  • 8. Basel – III Norms Basel – III norms aim to: • Improving the banking sector's ability to absorb shocks arising from financial and economic stress • Improve risk management and governance • Strengthen banks' transparency and disclosures
  • 9. Structure of Basel – III Accord • Minimum Regulatory Capital Requirements based on Risk Weighted Assets (RWAs) : Maintaining capital calculated through credit, market and operational risk areas. • Supervisory Review Process : Regulating tools and frameworks for dealing with peripheral risks that banks face • Market Discipline : Increasing the disclosures that banks must provide to increase the transparency of banks
  • 10. Major changes in Basel - III • Better Capital Quality • Capital Conservation Buffer • Counter cyclical Buffer • Minimum Common Equity and Tier I Capital requirements • Leverage Ratios • Liquidity Ratios • Systematically Important Financial Institutions
  • 11. BASEL III ACCORD • The G20 endorsed the new ‘Basel 3’ capital and liquidity requirements. • Extension of Basel II with critical additions, such as a leverage ratio, a macro prudential overview and the liquidity framework. • Basel III accord provides a substantial strengthening of capital requirements. • Basel III will place greater emphasis on loss-absorbency capacity on a going concern basis • The proposed changes are to be phased from 2013 to 2015
  • 12. Basel III-Objectives • Special emphasis on the Capital Adequacy Ratio – Capital Adequacy Ratio is calculated as – CAR = (Tier 1 Capital + Tier 2 Capital) / Risk Weighted Assets – Reducing risk spillover to the real economy • Comprehensive set of reform measures to strengthen the banking sector. • Strengthens banks transparency and disclosures. • Improve the banking sectors ability to absorb shocks arising from financial and economic stress.
  • 13. Major features of Basel III • Revised Minimum Equity & Tier 1 Capital Requirements • Better Capital Quality • Backstop Leverage Ratio • Short term and long term liquidity funding • Inclusion of Leverage Ratio & Liquidity Ratios • Rigorous credit risk management • Counter Cyclical Buffer • Capital conservation Buffer
  • 14. Impact on Pakistani banking system • Profitability • Capital acquisition • Liquidity Needs • Limits on lending • Bank consolidation • Pressure on Yield on Assets • Pressure on Return on Equity: • Stability in the Banking system
  • 15. Conclusion • One shoe doesn’t fit all. • Monetary policies of Central Banks in each country (example RBI’s CRR, SLR, Repo etc.) make it difficult to uniformly implement BASEL norms • Exercising controls on the capital, liquidity and leveraging of banks will ensure that they have the ability to withstand crises.

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