Basel 3 is an update to the Basel Accords that aims to strengthen bank capital requirements and introduce new regulatory requirements on bank liquidity and leverage. Key changes include tighter definitions of Tier 1 capital, a leverage ratio, countercyclical capital buffers, and new liquidity standards. The goals are to promote a more resilient banking system and reduce risk of financial crises. Basel 3 also seeks to address procyclicality concerns by promoting capital conservation and countercyclical buffers.
The Basel Accords are a series of banking regulations established by the Basel Committee on Banking Supervision. The document discusses the history and objectives of the Basel Accords. It explains that the Basel Committee was established in 1974 to improve banking supervision globally and set minimum capital requirements for banks. The Basel I Accord established the first capital requirements in 1988. Subsequent accords like Basel II and III enhanced regulations around capital adequacy ratios, risk management, disclosure, and liquidity to promote global financial stability.
This document provides an overview and summary of Basel III and its implications presented by Dr. Nabil Zaki. It includes an agenda, housekeeping notes, introduction of the speaker, and sections on Basel III capital requirements, capital buffers, liquidity standards including the Liquidity Coverage Ratio and Net Stable Funding Ratio. The presentation outlines the new Basel III regulations, including higher capital minimums, tighter definitions of capital, and new liquidity requirements for banks in response to the financial crisis.
The document then discusses the key aspects of Basel I and Basel II accords. Basel I, introduced in 1998, required banks to hold capital equal to at least 8% of total assets, measured according to their riskiness across four buckets (0%, 20%, 50%, 100%). Basel II, published in 2004, consists of three pillars - minimum capital requirements, supervisory review, and market discipline. It introduced a risk
Basel III and its impact on the Indian banking sector. Basel I, II, and III are international banking accord that set capital requirements for banks to reduce risks. Basel III strengthens bank capital and liquidity rules following the 2008 crisis. For India, Basel III means banks must increase capital, manage liquidity risks better, and improve transparency. This will impact bank profitability, capital raising, and consolidation in the Indian banking system.
Basel III is the third set of banking regulations by the Basel Committee that aims to improve banks' ability to withstand financial and economic stress through better risk management, governance, transparency, and capital adequacy requirements. It establishes minimum capital requirements calculated based on credit, market and operational risk, as well as capital buffers, leverage ratios and liquidity ratios to increase banks' resilience. The regulations also strengthen supervisory review and market discipline through improved disclosures.
Basel III is a global regulatory framework that aims to strengthen bank capital requirements and introduces new regulatory requirements on bank liquidity and leverage. The document outlines the key elements of Basel III including the three pillars of capital adequacy, supervisory review, and market discipline. It discusses the challenges Indian banks may face in implementing the new capital, leverage, and liquidity requirements and how this may impact their profitability. The higher capital requirements under Basel III will be difficult for Indian banks, especially public sector banks, to meet and may require raising over 1.5 trillion rupees in additional capital.
Basel III is a global regulatory standard that strengthens bank capital requirements and introduces new global liquidity and leverage ratio standards. It requires banks to hold more and higher quality capital, including 4.5% common equity and 6% Tier 1 capital as a percentage of risk-weighted assets by 2015. Basel III also introduces capital buffers and new liquidity standards including a liquidity coverage ratio and net stable funding ratio to be implemented by 2015 and 2018. The goals of Basel III are to strengthen transparency, coverage of risks, and risk management practices for banks globally.
The Basel Accords are a series of banking regulations established by the Basel Committee on Banking Supervision. The document discusses the history and objectives of the Basel Accords. It explains that the Basel Committee was established in 1974 to improve banking supervision globally and set minimum capital requirements for banks. The Basel I Accord established the first capital requirements in 1988. Subsequent accords like Basel II and III enhanced regulations around capital adequacy ratios, risk management, disclosure, and liquidity to promote global financial stability.
This document provides an overview and summary of Basel III and its implications presented by Dr. Nabil Zaki. It includes an agenda, housekeeping notes, introduction of the speaker, and sections on Basel III capital requirements, capital buffers, liquidity standards including the Liquidity Coverage Ratio and Net Stable Funding Ratio. The presentation outlines the new Basel III regulations, including higher capital minimums, tighter definitions of capital, and new liquidity requirements for banks in response to the financial crisis.
The document then discusses the key aspects of Basel I and Basel II accords. Basel I, introduced in 1998, required banks to hold capital equal to at least 8% of total assets, measured according to their riskiness across four buckets (0%, 20%, 50%, 100%). Basel II, published in 2004, consists of three pillars - minimum capital requirements, supervisory review, and market discipline. It introduced a risk
Basel III and its impact on the Indian banking sector. Basel I, II, and III are international banking accord that set capital requirements for banks to reduce risks. Basel III strengthens bank capital and liquidity rules following the 2008 crisis. For India, Basel III means banks must increase capital, manage liquidity risks better, and improve transparency. This will impact bank profitability, capital raising, and consolidation in the Indian banking system.
Basel III is the third set of banking regulations by the Basel Committee that aims to improve banks' ability to withstand financial and economic stress through better risk management, governance, transparency, and capital adequacy requirements. It establishes minimum capital requirements calculated based on credit, market and operational risk, as well as capital buffers, leverage ratios and liquidity ratios to increase banks' resilience. The regulations also strengthen supervisory review and market discipline through improved disclosures.
Basel III is a global regulatory framework that aims to strengthen bank capital requirements and introduces new regulatory requirements on bank liquidity and leverage. The document outlines the key elements of Basel III including the three pillars of capital adequacy, supervisory review, and market discipline. It discusses the challenges Indian banks may face in implementing the new capital, leverage, and liquidity requirements and how this may impact their profitability. The higher capital requirements under Basel III will be difficult for Indian banks, especially public sector banks, to meet and may require raising over 1.5 trillion rupees in additional capital.
Basel III is a global regulatory standard that strengthens bank capital requirements and introduces new global liquidity and leverage ratio standards. It requires banks to hold more and higher quality capital, including 4.5% common equity and 6% Tier 1 capital as a percentage of risk-weighted assets by 2015. Basel III also introduces capital buffers and new liquidity standards including a liquidity coverage ratio and net stable funding ratio to be implemented by 2015 and 2018. The goals of Basel III are to strengthen transparency, coverage of risks, and risk management practices for banks globally.
Basel III is a global regulatory standard that aims to strengthen bank capital requirements and introduce new regulatory requirements on bank liquidity and leverage. It seeks to improve bank capital standards, stress testing, and market liquidity risk. The goals are to minimize the probability of bank failures, ensure banks can absorb shocks from financial and economic stress, and improve risk management. Basel III introduces reforms to bank capital adequacy, stress testing, market liquidity risk, and implements additional capital buffers and leverage ratios. It aims to strengthen the banking sector's ability to absorb losses during periods of financial and economic stress.
The document summarizes the history and development of the Basel Committee on Banking Supervision and the Basel Accords. It discusses how the Basel Committee was formed in 1974 in response to banking crises. It then describes the three Basel Accords - Basel I established minimum capital requirements in 1988, Basel II introduced additional risk-based requirements in 2004, and Basel III strengthened capital and liquidity standards following the 2008 financial crisis. The document provides details on the pillars and key provisions of each accord.
Basel III is a global regulatory framework that aims to strengthen bank capital requirements and introduces new regulations on bank liquidity and leverage. It seeks to raise the quality of capital held by banks and strengthen their ability to absorb losses. The document outlines the key components of Basel III, including higher capital requirements, a new leverage ratio, and liquidity standards. It also discusses the potential macroeconomic impact and advantages of Basel III, as well as country-level implementations like in the US.
The regulation of banking industry (basel accord)Amrita Debnath
The document summarizes the Basel Accords, which are international agreements that establish regulations on bank capital adequacy. Basel I established minimum capital requirements and risk weightings for assets. Basel II introduced more risk-sensitive capital requirements and three pillars for supervision. Basel III strengthened capital requirements after the 2008 crisis by requiring higher quality capital reserves and introducing leverage ratios and liquidity standards. The accords aim to promote global financial stability by reducing risk in the banking system.
The document discusses the Capital Adequacy Ratio (CAR) and its evolution over time from Basel I, II, and III accords. CAR is a ratio used by regulators to assess a bank's capital adequacy by comparing its capital to risk-weighted assets. The Basel accords established international standards for CAR and defined components like Tier 1 capital, Tier 2 capital, and risk weighting of assets. Basel III aimed to strengthen banks' ability to absorb shocks by improving capital quality and introducing liquidity ratios and leverage ratios.
Basel II is an international standard that aims to strengthen the regulation, supervision and risk management within the banking sector. It improves upon Basel I by making capital requirements more risk sensitive and aligning regulatory capital more closely with underlying bank risks. Basel II consists of three pillars that cover minimum capital requirements, supervisory review, and market discipline. Implementation of Basel II varies across countries and regulators but aims to modernize capital adequacy standards to be more comprehensive and risk sensitive.
Impact of Basel III: Presentation at the Romanian Banking Institute, Buchares...eschizas
The document discusses the Basel III banking regulations which aim to strengthen bank capital requirements and introduce new regulatory standards on bank liquidity and leverage. It provides a timeline of Basel III negotiations and implementations. It then summarizes assessments of Basel III's expected macroeconomic impact, which generally find a small negative output effect but disagree on the size of increases to lending spreads. The document also discusses uncertainties in these assessments and potential microeconomic effects on individual banks, including strategies banks may employ and potential unintended consequences regarding risk-taking and financial system stability.
Basel III is a global regulatory standard that aims to strengthen bank capital requirements and introduce new regulatory requirements on bank liquidity and leverage. It was implemented in response to deficiencies in the previous Basel II framework that were exposed by the global financial crisis. The goals of Basel III include improving the banking sector's ability to absorb shocks, reducing systemic risk, and increasing transparency. It establishes stricter capital standards, introduces capital buffers, and imposes new liquidity measures including the liquidity coverage ratio and net stable funding ratio.
The Basel Accords are agreements established by the Basel Committee on Banking Supervision that provide recommendations on banking regulations and standards. The purpose is to ensure that banks have sufficient capital reserves to protect against unexpected financial risks. Basel I established initial capital requirements and risk weights. Basel II introduced refined risk management standards. Basel III was released in 2010 in response to the financial crisis to strengthen capital and liquidity standards for banks.
The document discusses the Basel Committee on Banking Supervision and the Basel Accords. It provides background on the BIS and establishes that the Basel Committee published Basel I in 1988 to establish minimum capital requirements for banks. Basel I focused on credit risk and classified assets into risk weight categories. It aimed to strengthen stability in international banking and decrease competitive inequality. However, Basel I had limitations like simplistic risk differentiation and a static view of default risk. This led to the development of Basel II.
KPMG-NYBA US Basel III Capital Requirement for Community Banks Presentation D...sarojkdas
The document summarizes key aspects of the US Basel III regulatory capital requirements for small cap banks, specifically those with less than $15 billion in assets. It outlines the higher minimum capital ratio requirements being implemented, including a new common equity tier 1 ratio of 4.5% and a capital conservation buffer of 2.5% of risk-weighted assets. It also discusses changes to risk weights for various asset classes and the phase-in periods for the requirements.
Basel 1 and Basel 2 promote banking safety and soundness. Basel 1 introduced risk-based capital requirements but had weaknesses. Basel 2 builds on Basel 1 with three pillars: minimum capital requirements calculated based on credit, market and operational risk; supervisory review of risk management; and market discipline through disclosure. It utilizes internal ratings-based and standardized approaches to determine capital requirements in a more risk-sensitive manner.
The document provides information on the Bank for International Settlements (BIS) and the Basel I accord. It discusses that BIS was established in 1930 by central banks and continues to serve as a forum for international cooperation on banking supervision. Basel I, released in 1988, was the first international banking accord that set minimum capital requirements for credit risk. It established risk weights for various types of assets and exposures. However, it only addressed credit risk and was later improved by Basel II and III.
Basel iii Compliance Professionals Association (BiiiCPA) - Part ACompliance LLC
Certified Basel iii Professional (CBiiiPro)
Objectives: The seminar has been designed to provide with the knowledge and skills needed to understand the new Basel III framework and to work in Basel III Projects.
Target Audience: This course is intended for managers and professionals working in Banks, Financial Organizations, Financial Groups and Financial Conglomerates who need to understand the new Basel III requirements, challenges and opportunities. It is also intended for management consultants, vendors, suppliers and service providers working for financial organizations.
This course is highly recommended for:
- Managers and Professionals involved in Basel III (decision making and implementation)
- Risk and Compliance Officers
- Auditors
- IT Professionals
- Strategic Planners
- Analysts
- Legal Counsels
- Process Owners
Basel III is an international regulatory framework that introduced reforms to improve banking sector regulation and risk management. It consists of 3 pillars - minimum capital requirements, supervisory review, and market discipline. The first pillar sets minimum capital requirements for credit, market and operational risk. It introduced capital buffers and distinguishes between Common Equity Tier 1, Additional Tier 1 and Tier 2 capital. The second pillar aims to ensure banks effectively monitor institution-wide risks. The third pillar promotes market discipline through financial disclosures.
The document summarizes the history and key aspects of Basel Accords, which are international standards for bank capital adequacy, stress testing, and liquidity risk. It outlines regulations pre-1988, Basel I in 1988, amendments in 1996 and proposed Basel II in 1999. Basel I first introduced capital requirements. Basel II in 2007 improved this with three pillars for minimum capital, supervision, and disclosure. It introduced risk-weighted capital requirements and recognized credit risk mitigants. However, both accords were criticized for issues like pro-cyclicality and regulatory arbitrage.
This paper was presented at the SAFA Workshop on Impact of Basel II, held on September 8, 2014 in Dhaka, Bangladesh. By Sayyid Mansoob Hasan, FCMA - Chairman SAFA Task Force to develop a strategy to combat corruption in SAARC Region.
SAFA: South Asian Federation of Accountants
Basel norms were introduced by Basel Committee to have a standardized prudential norms for capital adequacy
The prudential norms defined components of capital, assigned risk weights to different types of assets and stipulated the minimum Capital Adequacy to aggregate Risk weighted Assets (CRAR)
The minimum standard of capital to be kept with commercial banks was fixed 8% of RWA under Basel 1 & Basel 2 norms which was increased to 9% of RWA under Basel 3
Capital Adequacy Ratio-
Capital adequacy ratio is the ratio of the banks capital to its risk-weighted assets
The capital adequacy of banks is assessed based on the following three aspect –
Composition of capital
Composition of risk-weighted assets
Assigning risk-weights
Basel 1
Came into effect in the year 1988
Focused majorly on credit risk
Minimum capital requirement was set 8% to be achieved by the end of 1992 and it applied to all G10 countries
However later on several non-G10 countries also adopted the same
Objectives of Basel 1 accord were : To strengthen the soundness and stability of banking system and to have high degree of consistency across the banks
Basel 2
Came into effect in the year 2006
Focused on all sort of credit risk, market risk and operational risk
Minimum capital requirement set remained same as in Basel 1 at 8%
Provided for better risk management practices and advised bank on using internal systems for assessment of risks
Supervisors were advised to take suitable approaches for efficiency of bank
Basel 3
Banks are required to maintain a minimum of Pillar 1 Capital to Risk weighted Assets Ratio of 9% on a continuous basis.
For assessment of capital charge for credit risk banks have to mandatory obtain credit rating from credit rating agencies approved by RBI.
NPA management procedures implemented through classification of loan assets as standard, sub-standard, doubtful and loss assets.
Thank You For Watching
Subscribe to DevTech Finance
Basel II is an international standard that establishes capital requirements for banks to guard against financial and operational risks. It consists of three pillars: minimum capital requirements to cover credit, market and operational risks; supervisory review to ensure adequate capital to cover all risks; and market discipline through disclosure requirements. While Basel II aims to make capital requirements more risk sensitive, Indian banks face challenges in implementing it due to lack of risk management expertise, need for technology investments, and restructuring of non-performing assets. A gradual implementation process will help ensure a smooth transition to the new framework.
This presentation provides a basic overview of the Basel agreements. It summarizes the objectives and key aspects of Basel I, which was adopted in 1988, and Basel II, adopted in 2006. Basel I established international standards for capital adequacy and risk management but had shortcomings in risk sensitivity. Basel II aimed to create a more comprehensive framework for credit, market and operational risk and encourage rigorous bank supervision and risk management. The presentation concludes by noting the adoption of Basel II in the EU and flags the subprime crisis as a point for further thinking.
The document discusses constructivism as an international relations theory and analyzes NATO enlargement through realist, liberalist, and constructivist lenses. It finds that constructivism best explains NATO's decision to enlarge by promoting shared Western liberal values like democracy and human rights through granting membership to Hungary, Poland, and Czech Republic, who had strongly internalized these norms. However, no single theory can fully account for international organizations; they must be combined to provide a comprehensive understanding.
FIIs and DIIs have significantly impacted the Indian stock market. FIIs first began investing in India in 1992 and there are now over 1500 registered FIIs. FIIs bring foreign capital into India which increases stock prices and improves liquidity, but they also introduce more volatility as they frequently move large investments in and out of the country based on short-term prospects. Their outflows have been a major factor in several crashes of the Indian stock market.
Basel III is a global regulatory standard that aims to strengthen bank capital requirements and introduce new regulatory requirements on bank liquidity and leverage. It seeks to improve bank capital standards, stress testing, and market liquidity risk. The goals are to minimize the probability of bank failures, ensure banks can absorb shocks from financial and economic stress, and improve risk management. Basel III introduces reforms to bank capital adequacy, stress testing, market liquidity risk, and implements additional capital buffers and leverage ratios. It aims to strengthen the banking sector's ability to absorb losses during periods of financial and economic stress.
The document summarizes the history and development of the Basel Committee on Banking Supervision and the Basel Accords. It discusses how the Basel Committee was formed in 1974 in response to banking crises. It then describes the three Basel Accords - Basel I established minimum capital requirements in 1988, Basel II introduced additional risk-based requirements in 2004, and Basel III strengthened capital and liquidity standards following the 2008 financial crisis. The document provides details on the pillars and key provisions of each accord.
Basel III is a global regulatory framework that aims to strengthen bank capital requirements and introduces new regulations on bank liquidity and leverage. It seeks to raise the quality of capital held by banks and strengthen their ability to absorb losses. The document outlines the key components of Basel III, including higher capital requirements, a new leverage ratio, and liquidity standards. It also discusses the potential macroeconomic impact and advantages of Basel III, as well as country-level implementations like in the US.
The regulation of banking industry (basel accord)Amrita Debnath
The document summarizes the Basel Accords, which are international agreements that establish regulations on bank capital adequacy. Basel I established minimum capital requirements and risk weightings for assets. Basel II introduced more risk-sensitive capital requirements and three pillars for supervision. Basel III strengthened capital requirements after the 2008 crisis by requiring higher quality capital reserves and introducing leverage ratios and liquidity standards. The accords aim to promote global financial stability by reducing risk in the banking system.
The document discusses the Capital Adequacy Ratio (CAR) and its evolution over time from Basel I, II, and III accords. CAR is a ratio used by regulators to assess a bank's capital adequacy by comparing its capital to risk-weighted assets. The Basel accords established international standards for CAR and defined components like Tier 1 capital, Tier 2 capital, and risk weighting of assets. Basel III aimed to strengthen banks' ability to absorb shocks by improving capital quality and introducing liquidity ratios and leverage ratios.
Basel II is an international standard that aims to strengthen the regulation, supervision and risk management within the banking sector. It improves upon Basel I by making capital requirements more risk sensitive and aligning regulatory capital more closely with underlying bank risks. Basel II consists of three pillars that cover minimum capital requirements, supervisory review, and market discipline. Implementation of Basel II varies across countries and regulators but aims to modernize capital adequacy standards to be more comprehensive and risk sensitive.
Impact of Basel III: Presentation at the Romanian Banking Institute, Buchares...eschizas
The document discusses the Basel III banking regulations which aim to strengthen bank capital requirements and introduce new regulatory standards on bank liquidity and leverage. It provides a timeline of Basel III negotiations and implementations. It then summarizes assessments of Basel III's expected macroeconomic impact, which generally find a small negative output effect but disagree on the size of increases to lending spreads. The document also discusses uncertainties in these assessments and potential microeconomic effects on individual banks, including strategies banks may employ and potential unintended consequences regarding risk-taking and financial system stability.
Basel III is a global regulatory standard that aims to strengthen bank capital requirements and introduce new regulatory requirements on bank liquidity and leverage. It was implemented in response to deficiencies in the previous Basel II framework that were exposed by the global financial crisis. The goals of Basel III include improving the banking sector's ability to absorb shocks, reducing systemic risk, and increasing transparency. It establishes stricter capital standards, introduces capital buffers, and imposes new liquidity measures including the liquidity coverage ratio and net stable funding ratio.
The Basel Accords are agreements established by the Basel Committee on Banking Supervision that provide recommendations on banking regulations and standards. The purpose is to ensure that banks have sufficient capital reserves to protect against unexpected financial risks. Basel I established initial capital requirements and risk weights. Basel II introduced refined risk management standards. Basel III was released in 2010 in response to the financial crisis to strengthen capital and liquidity standards for banks.
The document discusses the Basel Committee on Banking Supervision and the Basel Accords. It provides background on the BIS and establishes that the Basel Committee published Basel I in 1988 to establish minimum capital requirements for banks. Basel I focused on credit risk and classified assets into risk weight categories. It aimed to strengthen stability in international banking and decrease competitive inequality. However, Basel I had limitations like simplistic risk differentiation and a static view of default risk. This led to the development of Basel II.
KPMG-NYBA US Basel III Capital Requirement for Community Banks Presentation D...sarojkdas
The document summarizes key aspects of the US Basel III regulatory capital requirements for small cap banks, specifically those with less than $15 billion in assets. It outlines the higher minimum capital ratio requirements being implemented, including a new common equity tier 1 ratio of 4.5% and a capital conservation buffer of 2.5% of risk-weighted assets. It also discusses changes to risk weights for various asset classes and the phase-in periods for the requirements.
Basel 1 and Basel 2 promote banking safety and soundness. Basel 1 introduced risk-based capital requirements but had weaknesses. Basel 2 builds on Basel 1 with three pillars: minimum capital requirements calculated based on credit, market and operational risk; supervisory review of risk management; and market discipline through disclosure. It utilizes internal ratings-based and standardized approaches to determine capital requirements in a more risk-sensitive manner.
The document provides information on the Bank for International Settlements (BIS) and the Basel I accord. It discusses that BIS was established in 1930 by central banks and continues to serve as a forum for international cooperation on banking supervision. Basel I, released in 1988, was the first international banking accord that set minimum capital requirements for credit risk. It established risk weights for various types of assets and exposures. However, it only addressed credit risk and was later improved by Basel II and III.
Basel iii Compliance Professionals Association (BiiiCPA) - Part ACompliance LLC
Certified Basel iii Professional (CBiiiPro)
Objectives: The seminar has been designed to provide with the knowledge and skills needed to understand the new Basel III framework and to work in Basel III Projects.
Target Audience: This course is intended for managers and professionals working in Banks, Financial Organizations, Financial Groups and Financial Conglomerates who need to understand the new Basel III requirements, challenges and opportunities. It is also intended for management consultants, vendors, suppliers and service providers working for financial organizations.
This course is highly recommended for:
- Managers and Professionals involved in Basel III (decision making and implementation)
- Risk and Compliance Officers
- Auditors
- IT Professionals
- Strategic Planners
- Analysts
- Legal Counsels
- Process Owners
Basel III is an international regulatory framework that introduced reforms to improve banking sector regulation and risk management. It consists of 3 pillars - minimum capital requirements, supervisory review, and market discipline. The first pillar sets minimum capital requirements for credit, market and operational risk. It introduced capital buffers and distinguishes between Common Equity Tier 1, Additional Tier 1 and Tier 2 capital. The second pillar aims to ensure banks effectively monitor institution-wide risks. The third pillar promotes market discipline through financial disclosures.
The document summarizes the history and key aspects of Basel Accords, which are international standards for bank capital adequacy, stress testing, and liquidity risk. It outlines regulations pre-1988, Basel I in 1988, amendments in 1996 and proposed Basel II in 1999. Basel I first introduced capital requirements. Basel II in 2007 improved this with three pillars for minimum capital, supervision, and disclosure. It introduced risk-weighted capital requirements and recognized credit risk mitigants. However, both accords were criticized for issues like pro-cyclicality and regulatory arbitrage.
This paper was presented at the SAFA Workshop on Impact of Basel II, held on September 8, 2014 in Dhaka, Bangladesh. By Sayyid Mansoob Hasan, FCMA - Chairman SAFA Task Force to develop a strategy to combat corruption in SAARC Region.
SAFA: South Asian Federation of Accountants
Basel norms were introduced by Basel Committee to have a standardized prudential norms for capital adequacy
The prudential norms defined components of capital, assigned risk weights to different types of assets and stipulated the minimum Capital Adequacy to aggregate Risk weighted Assets (CRAR)
The minimum standard of capital to be kept with commercial banks was fixed 8% of RWA under Basel 1 & Basel 2 norms which was increased to 9% of RWA under Basel 3
Capital Adequacy Ratio-
Capital adequacy ratio is the ratio of the banks capital to its risk-weighted assets
The capital adequacy of banks is assessed based on the following three aspect –
Composition of capital
Composition of risk-weighted assets
Assigning risk-weights
Basel 1
Came into effect in the year 1988
Focused majorly on credit risk
Minimum capital requirement was set 8% to be achieved by the end of 1992 and it applied to all G10 countries
However later on several non-G10 countries also adopted the same
Objectives of Basel 1 accord were : To strengthen the soundness and stability of banking system and to have high degree of consistency across the banks
Basel 2
Came into effect in the year 2006
Focused on all sort of credit risk, market risk and operational risk
Minimum capital requirement set remained same as in Basel 1 at 8%
Provided for better risk management practices and advised bank on using internal systems for assessment of risks
Supervisors were advised to take suitable approaches for efficiency of bank
Basel 3
Banks are required to maintain a minimum of Pillar 1 Capital to Risk weighted Assets Ratio of 9% on a continuous basis.
For assessment of capital charge for credit risk banks have to mandatory obtain credit rating from credit rating agencies approved by RBI.
NPA management procedures implemented through classification of loan assets as standard, sub-standard, doubtful and loss assets.
Thank You For Watching
Subscribe to DevTech Finance
Basel II is an international standard that establishes capital requirements for banks to guard against financial and operational risks. It consists of three pillars: minimum capital requirements to cover credit, market and operational risks; supervisory review to ensure adequate capital to cover all risks; and market discipline through disclosure requirements. While Basel II aims to make capital requirements more risk sensitive, Indian banks face challenges in implementing it due to lack of risk management expertise, need for technology investments, and restructuring of non-performing assets. A gradual implementation process will help ensure a smooth transition to the new framework.
This presentation provides a basic overview of the Basel agreements. It summarizes the objectives and key aspects of Basel I, which was adopted in 1988, and Basel II, adopted in 2006. Basel I established international standards for capital adequacy and risk management but had shortcomings in risk sensitivity. Basel II aimed to create a more comprehensive framework for credit, market and operational risk and encourage rigorous bank supervision and risk management. The presentation concludes by noting the adoption of Basel II in the EU and flags the subprime crisis as a point for further thinking.
The document discusses constructivism as an international relations theory and analyzes NATO enlargement through realist, liberalist, and constructivist lenses. It finds that constructivism best explains NATO's decision to enlarge by promoting shared Western liberal values like democracy and human rights through granting membership to Hungary, Poland, and Czech Republic, who had strongly internalized these norms. However, no single theory can fully account for international organizations; they must be combined to provide a comprehensive understanding.
FIIs and DIIs have significantly impacted the Indian stock market. FIIs first began investing in India in 1992 and there are now over 1500 registered FIIs. FIIs bring foreign capital into India which increases stock prices and improves liquidity, but they also introduce more volatility as they frequently move large investments in and out of the country based on short-term prospects. Their outflows have been a major factor in several crashes of the Indian stock market.
This document is a grand project report submitted by Mr. Vineeth V. Poliyath to Gujarat Technological University for his MBA degree. The report studies the influence of foreign institutional investors on the BSE stock market in India from 2002-2012. It includes an introduction, literature review, research methodology, data analysis and interpretation, findings, conclusions and suggestions.
The document discusses the term "global governance" and how it lacks a universally accepted definition. It notes that while governance is not equivalent to government, it refers to establishing rules and institutions to facilitate cooperation between interdependent actors. The document examines definitions of governance provided by other scholars and argues they blur the distinction between bargaining and enforcing agreements. It states globalization connects to global governance as problems increase in scope beyond the capacity of individual states, requiring them to delegate authority. In conclusion, global governance is described as the governing of relationships across borders in the absence of a world government through cooperative institutions and processes.
The document provides an overview of foreign institutional investors (FIIs) in India. It discusses how FIIs started investing in India in 1992, the registration process for FIIs with SEBI, eligibility criteria, where FIIs can invest, taxation rules, the impact of FIIs on the Indian market including stock market volatility, and FIIs performance compared to foreign direct investment. It also summarizes FII inflows and outflows during a market crash in January 2008.
The British have shocked the financial, political and business establishments of the world by voting to leave (52%) the European Union in the referendum of 23 June 2016.
This document discusses the potential impacts of Brexit on India and the global economy. It notes that if the UK exits the EU, Indian stocks would decline initially. India exports many goods to the UK, and UK-based companies invest heavily in India. So a Brexit could reduce UK-India trade and investment. Several large Indian companies like Tata Steel and Tata Motors that generate significant revenue from UK/Europe operations would likely be negatively affected. The document also suggests Brexit could increase global financial market volatility and reduce global economic growth by up to 5.6% over three years. However, if the UK remains in the EU, its economy is projected to grow faster.
The document discusses foreign direct investment (FDI) and foreign institutional investment (FII) in India. It provides an overview of types of foreign investment including wholly owned subsidiaries, joint ventures, acquisitions, and portfolio investments. Benefits of foreign investment are described such as job creation, technological advancement, and economic growth. Factors affecting foreign investment in India and growth trends over time are also examined. The document focuses on FDI in India's retail sector and the potential advantages it may provide.
The World Bank was formed in 1944 at the Bretton Woods Conference to provide financing for postwar reconstruction and development. It began providing loans to devastated European and Asian countries in 1947 and has since grown to include 188 member countries. The World Bank aims to reduce poverty and support development by providing low-interest loans, interest-free credit, and grants to developing countries for education, health, infrastructure, and other projects. India has been the largest borrower from the World Bank and International Development Association since their inceptions.
The document discusses the impacts of the UK leaving the European Union (EU). It begins by providing background on the EU, including its origins after WWII and current makeup. Brexit is then defined as Britain's potential withdrawal from the EU. Reasons for Brexit include interference from the EU and UK tax payments to the EU. Potential economic impacts identified include effects on UK jobs, small businesses, GDP, foreign investment, and economic regulation. The currency could also be affected with the pound falling versus other currencies. Trade may be impacted by reducing free access to EU markets and exclusion from EU trade deals. Society may also feel costs if import prices rise and average households lose estimated annual benefits of £3,000 from EU membership.
Foreign Direct Investment in India (FDI)Ameya Gandhi
This document lists the group members of a project and provides information about foreign direct investment (FDI) in India. It summarizes key sectors that receive FDI in India like services, manufacturing, retail, and tourism. It also outlines India's FDI policies and restrictions in different sectors. Major investing countries in India include Mauritius, Singapore, USA, and UK. The document emphasizes the need to attract quality FDI and focus on export-oriented investments to benefit the local economy.
The World Bank is an international organization that provides financial and technical assistance to developing countries for programs aimed at reducing poverty. It was established in 1944 and has 185 member countries. The World Bank aims to reduce poverty through lending, grants, analytical services, and capacity building for projects related to agriculture, education, health, and other sectors. However, critics argue that the World Bank promotes Western interests and lacks transparency and democratic decision making.
The document discusses Basel, an international banking standards organization. It provides background on Basel I and II, which established minimum capital requirements and risk management standards for banks. Basel II had three pillars: minimum capital requirements, supervisory review, and market discipline. Basel III was then introduced after the 2008 financial crisis to strengthen regulations with stricter capital and liquidity standards, as well as additional buffers to improve banks' ability to withstand financial stress.
Basel III is an international regulatory framework that aims to strengthen bank capital requirements and introduce new regulatory requirements on bank liquidity and leverage. It was implemented in Bangladesh to improve regulation of banks and address shortcomings of previous Basel accords. Key aspects include higher capital conservation buffers, a countercyclical capital buffer, and eliminating tier 3 capital. The buffers were phased in fully by 2019 and must be met with high-quality Common Equity Tier 1 capital to ensure banks can withstand periods of financial stress. Basel III thus enhances capital standards and promotes a more stable and resilient banking sector in Bangladesh.
This document discusses various risks faced by banks such as credit risk, liquidity risk, market risk, and operational risk. It summarizes Basel I, Basel II, and Basel III capital adequacy frameworks which establish minimum capital requirements for banks. It outlines the key components of Tier 1 and Tier 2 capital and how risk weighted assets are calculated to determine the capital adequacy ratio. The Reserve Bank of India requires banks to maintain a minimum capital to risk-weighted assets ratio of 9% under Basel II norms.
The document discusses capital adequacy norms and concepts related to banking in India. Some key points:
- Capital Adequacy Ratio (CAR) refers to the ratio of a bank's capital to its risk assets and is used to protect depositor and shareholder interests.
- The Basel Committee prescribed international capital adequacy norms. In India, the Narasimham Committee recommended banks maintain a minimum CAR of 8-10%.
- CAR is calculated based on risk-weighted assets, with different asset classes assigned risk factors. Capital is divided into Tier 1 (core) and Tier 2 categories.
- Asset-liability management aims to manage a bank's balance sheet to allow for interest rate
“Basel III is more about improving the risk management systems in the Banks than just Improved Quality and enhanced Quantity of capital”. Please discuss the challenges to the Indian Banks by March,2017
best material for ank exam 2014 ibps po best exam tips from gr8dreamz.com website, best material for ank exam 2014 ibps po best exam tips from gr8dreamz.com website, best material for ank exam 2014 ibps po best exam tips from gr8dreamz.com website,
The document summarizes Basel I and Basel II capital accords. Basel I, established in 1988, was the first international agreement that defined capital requirements for banks. It had several shortcomings that led to the development of Basel II in 2004, which improved risk sensitivity and introduced three pillars for regulatory capital, supervisory review, and market discipline. The purpose of Basel II was to establish a more sophisticated framework for ensuring banks have sufficient capital to cover their risks.
The document discusses the Basel Committee on Banking Supervision and the Basel accords. It provides background on the Basel Committee, describing how it was established in 1974 and its goal of strengthening banking regulations internationally. It then summarizes the key aspects of Basel I, Basel II, and Basel III, including their capital requirements, risk categorizations, and goals of improving risk management and financial stability. The summaries highlight how each accord built upon the previous one by incorporating additional risk types and making requirements more risk-sensitive.
The Capital Adequacy Ratio (CAR) is a ratio used by bank regulators to measure a bank's capital in relation to its risk. It is calculated by dividing a bank's capital by its risk-weighted assets. The minimum CAR required by regulators is 8%, with some countries requiring higher ratios. The CAR helps ensure banks can absorb reasonable losses and protects depositors, maintaining confidence in the banking system.
Basel III is a global regulatory standard that aims to strengthen bank capital requirements and introduce new regulatory requirements on bank liquidity and leverage. It was developed in response to deficiencies in previous regulations that contributed to the global financial crisis. The goals of Basel III include improving the banking sector's ability to absorb shocks from financial and economic stress, reducing risks, and strengthening transparency. Key changes under Basel III include higher and better quality capital buffers, introduction of leverage ratio, liquidity coverage ratio, net stable funding ratio, and capital surcharges for systemically important banks.
The impact of Basel III, also known as The Third Basel Accord, will vary by geography -- from potentially slowing down economies in emerging nations, to protecting the European Union from financial collapse, to increasing capital adequacy and improving risk management. Given the framework and timeline for implementing Basel III, the burden falls on national regulators to translate the international guidelines into national policies that suit and stabilize their economic environment and support economic growth.
Impact of Basel III on business of Indian Banks.pptxssuserffce38
This document provides an overview of the Basel III accord. It discusses the limitations of Basel II in addressing the global financial crisis, including its lack of emphasis on liquidity and leverage. Basel III was created in response to strengthen regulations. Its main objectives are to promote a more resilient banking sector and improve the ability to withstand financial stress. The key building blocks of Basel III include reforms to capital requirements, introducing stricter criteria for capital instruments and higher minimum thresholds. It also includes introducing a leverage ratio, capital conservation buffer, and countercyclical buffer to limit procyclicality.
The document summarizes new liquidity requirements proposed by the Basel Committee, including the Liquidity Coverage Ratio (LCR) and Net Stable Funding Ratio (NSFR). The LCR requires banks to hold high-quality liquid assets to cover net cash outflows over 30 days. The NSFR requires banks to fund illiquid assets with stable sources of funding over 1 year. The new rules are intended to strengthen banks' liquidity frameworks but may increase costs, weaken credit availability, and have procyclical effects. Banks in emerging markets may face greater challenges meeting the requirements.
This presentation is the one stop point to learn about Basel Norms in the Banking
This is the most comprehensive presentation on Risk Management in Banks and Basel Norms. It presents in details the evolution of Basel Norms right form Pre Basel area till implementation of Basel III in 2019 along with factors and reason for shifting of Basel I to II and finally to III.
Links to Video's in the presentation
Risk Management in Banks
https://www.youtube.com/watch?v=fZ5_V4RW5pE
Tier 1 Capital
http://www.investopedia.com/terms/t/tier1capital.asp
Tier 2 Capital
http://www.investopedia.com/terms/t/tier2capital.asp
Basel I
http://www.investopedia.com/terms/b/basel_i.asp
Capital Adequacy Ratio
http://www.investopedia.com/terms/c/capitaladequacyratio.asp
Basel II
http://www.investopedia.com/video/play/what-basel-ii/?header_alt=c
Basel III
http://www.investopedia.com/terms/b/basell-iii.asp
RBI Governor - Raghuram G Rajan on the importance if Basel III regulations
https://youtu.be/EN27ZRe_28A
The document discusses the implementation of Basel I and II capital adequacy norms by Indian banks. It provides background on the Basel Committee and an overview of the key aspects of Basel I, including the capital requirements and risk weighting of assets. It then summarizes the pillars of Basel II - minimum capital requirements, supervisory review, and market discipline - and highlights some of the pitfalls of both frameworks. The document concludes by noting the challenges faced by the Indian banking industry in implementing the new capital standards.
X IDB Debt Group Annual Meeting . Regulations and sovereign riskCristina Pailhé
1. New financial regulations like Basel III have direct and indirect consequences for sovereign debt markets by influencing banks' demand and pricing of sovereign debt.
2. Regulations like capital requirements, leverage ratios, and liquidity ratios incentivize banks to accumulate sovereign debt to meet requirements. Sovereign debt counts favorably for meeting ratios.
3. However, banks are no longer considered risk-free and high sovereign debt loads could undermine financial stability if a sovereign defaults. Regulations aim to balance financial stability with banks' sovereign debt demands.
Capital adequacy requirements impose at least a minimum capital participation by bank owners,
usually expressed as a fraction of certain assets of the bank.
This document discusses the Capital Adequacy Ratio (CAR) and its evolution over time from Basel I to Basel III. It defines CAR as the ratio of a bank's capital to its risk-weighted assets. Basel I established an initial CAR requirement of 8% in 1988. Basel II introduced a more risk-sensitive approach and recognized additional risks. Basel III further strengthened regulations by improving capital quality and introducing liquidity requirements. The overall purpose was to increase stability in the banking system and strengthen a bank's ability to absorb financial and economic shocks.
Changes to Basel Regulation Post 2008 CrisisIshan Jain
Subprime crisis
Basel Committee objectives and history
Pillars of Basel 2 and Basel 3
Basel 3 Capital Requirements
capital Rations
Capital Buffers
Leverage Ratios
Global Liquidity Standards
macroeconomic factors
Value at Risk
Expected Shortfall
Similar to Basel 3 by_khawar_nehal_18_sep_2010-2 (20)
The document outlines important questions that a business plan should address, including what customer need the business satisfies, how it satisfies that need differently than others, who the key people running the business are, the size of the target market, what types of customers it will pursue, and the marketing and selling strategies it will use. The business plan should also include detailed calculations, required resources to launch, and when those invested resources will be recovered.
Dubai Computer Services provides secure and reliable computing solutions, information technology architecture, training, and support with over 30 years of experience. They offer 24/7 support, business-focused architectures, and service level agreements. Customers can contact Khawar Nehal at 971-55-639-8386 or khawar@dubai-computer-services.com for more information.
Pakistan has an estimated 500-600 trillion cubic feet of shale gas reserves, enough to meet its current annual needs of 1.6 trillion cubic feet for over 300 years. The document suggests installing solar heaters to reduce natural gas usage and make shale gas last over 50 years by extracting and using it efficiently.
This document provides an introduction to Linux desktop environments like KDE and Gnome. It discusses desktop options like XPDE that resemble the Windows XP interface and Linspire's translation features. Open source applications like OpenOffice, Gaim, Mozilla, and Evolution are covered. The document also outlines advantages of Linux like speed, lack of viruses, lower costs and vendor support from companies like Dell, IBM and HP. In summary, the document introduces the user to popular Linux desktops and applications while highlighting benefits such as cost, performance and security.
Customer relationship management (CRM) is a method that uses technology to organize a company's interactions with customers and prospects across marketing, sales, customer service, and technical support. The main goals of a CRM system are to find new clients, retain existing clients, and regain former clients while reducing marketing and customer service costs. A CRM also aims to improve quality, efficiency, and collaboration between departments through features like sales automation, marketing campaigns, customer service tracking, analytics, and appointment scheduling.
Service Oriented Architecture.
SOA is a style of architecting applications in such a way that they are composed of discrete software agents that have simple, well defined interfaces and are orchestrated through a loose coupling to perform a required function.
The document discusses various social media platforms and their benefits and cons for businesses. Regarding LinkedIn specifically, it summarizes that LinkedIn is the most business-appropriate social network discussed. It allows people to find business connections, showcase skills and work experience to find new jobs or business opportunities. Companies can also create profiles to let potential job seekers learn about them and see who in their network works for that company. Unlike other platforms, LinkedIn does not aim to find customers for businesses but rather help businesses and individuals find and connect with each other.
This document outlines the process for investigating accidents and incidents. It defines an accident investigation as an important part of a safety management system that highlights why accidents occur and how to prevent them. The primary goals of an investigation are to identify the immediate and root causes of events and implement remedies to improve safety. All accidents, regardless of severity, should be investigated to some degree to identify common causes and trends. The stages of an investigation include dealing with immediate risks, selecting an investigation level, investigating the event, recording and analyzing results, and reviewing the process. Thorough observation, documentation review, and interviews are important for determining causes. Remedial actions should follow a hierarchy of risk control from elimination to engineering to administrative controls.
This document discusses the Muslim cultural practice of saying "inshallah" or "if God wills" when committing to future plans or events. It argues that using "inshallah" should only be done when one is fully committed and plans to do everything possible to fulfill the commitment. Otherwise, it is misleading others about one's intentions and values. The document recommends that Muslims be truthful when making commitments by acknowledging if they are uncertain about attending rather than using "inshallah" casually. Being punctual and reliable in commitments is presented as an important Muslim value.
An accident investigation aims to improve safety by exploring the causes of events and identifying remedies. All accidents, regardless of severity, should be investigated to some degree to understand root causes. A thorough investigation involves collecting evidence from the scene, documents, and witness interviews without blame. The investigation process determines immediate causes like unsafe acts or conditions, as well as underlying causes involving management systems. The results are recorded and analyzed to identify corrective actions and prevent future occurrences.
This document provides excerpts from the Bible discussing monotheism. It includes passages from Isaiah 44 describing how God chose Israel and will help them, pouring out blessings. It discusses how the Lord is the first and last, the only God, and how those who make idols will be ashamed. The excerpts condemn idol worship and praise God as the redeemer of Israel.
The document discusses global climate change and summarizes the findings of the Intergovernmental Panel on Climate Change (IPCC). The IPCC concludes that warming of the climate is occurring and is very likely due to human-caused greenhouse gas emissions. The IPCC reports observe increasing global temperatures, melting ice and snow, and rising sea levels. Greenhouse gas levels are at the highest levels in hundreds of thousands of years and will likely cause continued warming and sea level rise for centuries. The document also notes potential effects like increased wildfires, species extinctions, and more severe heat waves.
The document discusses access control, including definitions, principles, policies, requirements, and basic elements. It covers discretionary access control models, protection domains, UNIX file access control using inodes, traditional UNIX controls like setuid and sticky bits, and newer access control lists in UNIX.
The document discusses various methods for user authentication, including passwords, tokens, and biometrics. It describes strategies for improving password security, such as password selection techniques, password files, and shadow passwords. It also covers token-based authentication using memory cards and smart cards. Biometric authentication using physical characteristics like fingerprints is explored. Finally, it summarizes challenges with remote user authentication and provides examples of password, token, and biometric protocols.
User authentication is the process of verifying an identity claimed by a system entity. There are four main means of authenticating a user's identity: something the user knows (e.g. password), something the user possesses (e.g. smart card), something the user is (e.g. fingerprint), and something the user does (e.g. typing rhythm). Password authentication is widely used but vulnerable to dictionary attacks, password guessing, workstation hijacking, and exploiting multiple password use or user mistakes. Techniques like password hashing with salts and account lockouts help strengthen password authentication against cracking attempts.
The document discusses e-marketing planning and provides guidance on creating an e-marketing plan. It introduces the SOSTAC framework for e-marketing planning and emphasizes the importance of situation analysis, including demand analysis, competitor analysis, intermediary analysis, and an internal marketing audit. These analyses provide critical inputs to define objectives, strategies and tactics for the e-marketing plan. The document also notes that a separate e-marketing plan is typically required to fully capture online marketing opportunities and customer demand.
Cryptographic tools discussed include symmetric encryption using secret keys, public-key encryption using key pairs, hash functions for message authentication and digital signatures, and random numbers. Symmetric encryption is the most commonly used prior to public-key encryption due to efficiency. Hash functions are used to create digital signatures by encrypting a hash with a private key. Digital envelopes allow message protection without pre-arranged keys. Random numbers must be unpredictable and independent to be cryptographically secure.
This lecture discusses various cryptographic tools including symmetric encryption, public key encryption, digital signatures, and secure hash functions. Symmetric encryption uses a shared secret key between the sender and receiver. Cryptanalysis attacks try to deduce plaintext or keys by exploiting algorithm characteristics or known plaintext/ciphertext pairs. The lecture reviews common symmetric algorithms like DES, 3DES, and AES and discusses block vs stream ciphers. It also covers practical issues like encryption modes and the advantages of stream ciphers. Finally, it briefly discusses random numbers, quantum computing risks to encryption, and Gnu Privacy Guard (GPG).
More from Khawar Nehal khawar.nehal@atrc.net.pk (20)
1. BASEL 3
By : Khawar Nehal
CEO
Applied Technology Research Center
Khawar.nehal@atrc.net.pk
2. What is Basel 3 ?
Basel 3 is an update to the Basel Accords.
3. What is in Basel 3 ?
➢ Tighter definitions of Tier 1 capital. That means
banks must hold 4.5% by January 2015, then a
further 2.5%, totaling 7%.
➢ The introduction of a leverage ratio.
➢ A framework for counter-cyclical capital buffers
➢ Measures to limit counterparty credit risk
➢ Short and medium-term quantitative liquidity
ratios.
4. Why Basel 3 ?
To respond to the lack of adequate controls in
financial institutions, which led to lax checks in the
lending by banks, the Basel Committee on
Banking Supervision (BCBS) has come up with
updates to their guidelines for capital and banking
regulations.
5. How BCBS puts it.
This consultative document presents the Basel
Committee's proposals to strengthen global
capital and liquidity regulations with the goal of
promoting a more resilient banking sector. The
objective of the Basel Committee's reform
package is to improve the banking sector's ability
to absorb shocks arising from financial and
economic stress, whatever the source, thus
reducing the risk of spillover from the financial
sector to the real economy.
6. Tier 1 Capital
Tier 1 capital: the predominant form of Tier 1
capital must be common shares and retained
earnings.
Tier 1 capital is considered the more reliable form
of capital, which comprises the most junior
(subordinated) securities issued by the firm.
These include equity and qualifying perpetual
preferred stock.
7. Tier 1 Capital
Tier 1 capital is the core measure of a bank's
financial strength from a regulator's point of view.
It is composed of core capital, which consists
primarily of common stock and disclosed reserves
(or retained earnings), but may also include non-
redeemable non-cumulative preferred stock.
8. Tier 1 Capital
Capital in this sense is related to, but different from, the
accounting concept of shareholders' equity.
Both tier 1 and tier 2 capital were first defined in the Basel
I capital accord and remained substantially the same in
the replacement Basel II accord.
Tier 2 capital is senior to Tier 1, but subordinate to
deposits and the deposit insurer's claims. These include
preferred stock with fixed maturities and long-term debt
with minimum maturities of over five years.
9. Tier 1 Capital
Each country's banking regulator, however, has some discretion
over how differing financial instruments may count in a capital
calculation. This is appropriate, as the legal framework varies in
different legal systems.
The theoretical reason for holding capital is that it should
provide protection against unexpected losses.
Note that this is not the same as expected losses which are
covered by provisions, reserves and current year profits. In
Basel I agreement, Tier 1 capital is a minimum of 4% ownership
equity but investors generally require a ratio of 10%.
10. Tier 1 Capital Ratio
The Tier 1 capital ratio is the ratio of a bank's core equity capital
to its total risk-weighted assets. The Tier 1 risk based capital
ratio is the ratio of a bank's core (equity capital) to its total risk-
weighted assets. Risk-weighted assets are the total of all assets
held by the bank which are weighted for credit risk according to
a formula determined by the Regulator (usually the country's
central bank). Most central banks follow the Bank for
International Settlements (BIS) guidelines in setting formulas for
asset risk weights. Assets like cash and coins usually have zero
risk weight, while debentures might have a risk weight of 100%.
11. Tier 1 Capital Ratio
A good definition of Tier 1 capital is that it includes
equity capital and disclosed reserves, where
equity capital includes instruments that can't be
redeemed at the option of the holder (meaning
that the owner of the shares cannot decide on his
own that he wants to withdraw the money he
invested and so cannot leave the bank without the
risk coverage). Reserves are held by the bank,
and are thus money that no one but the bank can
have an influence on.
12. Tier 1 Capital Ratio
Tier 1 capital is seen as a metric of a bank's ability
to sustain future losses. It is the way to track how
much risk any particular bank is taking on, in
terms of dollars held per dollars loaned out.
A 10% Tier 1 capital ratio may approximate but
does not mean that a bank is holding in its vaults
$1 for every $10 that a customer has in their
account balance. The ratio looks across the
columns of the balance sheet. The $10 that the
customer has deposited is a liability of the bank.
13. Tier 1 Capital Ratio
The bank must have started with some equity
capital, say $2. The ratio requires that we
investigate what the bank does with those $12
(equity of $2 plus deposit of $10). If the bank
lends $9 and invests $3 in Treasury securities, the
question whether the Bank complies with its
capital requirements will depend on the risk-
adjusted asset-value of the claim against the
borrower for $9 that the bank holds.
14. Tier 1 Capital Ratio
If the risk-adjusted value of that is 90% or $8.10,
then (assuming the $3 Treasury deposit is valued
at 100%) the bank's risk-adjusted assets would be
$11.10, implying a Tier 1 capital requirement of
$1.10. The bank's liabilities are $10. Subtracted
from $11.10, they leave Tier 1 capital of $1.10, so
the bank is in compliance, albeit barely.
15. Tier 1 Capital Ratio
Some call the loan of $9 that the bank was able to
make in these circumstances fiat money because it
creates the appearance that more money is in
circulation than was issued by the central bank. In this
example, the most that the central bank could have
issued would be the $2 equity plus the $10 deposit, yet
the borrower together with the depositor, believe they
can purchase $19 of goods and the bank's equity
holders believe they hold equity of $2. Thus, even in an
economy of specie or hard money, fiat money will exist
to the extent permitted by bank regulation.
16. Tier 2 Capital
Tier 2 capital is a measure of a bank's financial
strength with regard to the second most reliable
form of financial capital from a regulatory point of
view.
The forms of banking capital were largely
standardized in the Basel I accord, issued by the
Basel Committee on Banking Supervision and left
untouched by the Basel II accord. National
regulators of most countries around the world have
implemented these standards in local legislation.
17. Tier 2 Capital classifications
There are several classifications of tier 2 capital.
In the Basel I Accord, tier 2 capital is composed of
supplementary capital, which is categorized as
undisclosed reserves, revaluation reserves,
general provisions, hybrid instruments and
subordinated term debt. Supplementary capital
can be considered tier 2 capital up to an amount
equal to that of the core capital.
19. Tier 3 Capital
Tertiary capital held by banks to meet part of their market
risks, that includes a greater variety of debt than tier 1
and tier 2 capitals. Tier 3 capital debts may include a
greater number of subordinated issues, undisclosed
reserves and general loss reserves compared to tier 2
capital.
Tier 3 capital is used to support market risk, commodities
risk and foreign currency risk. To qualify as tier 3 capital,
assets must be limited to 250% of a banks tier 1 capital,
be unsecured, subordinated and have a minimum
maturity of two years.
20. Changes Proposed in Basel III
First, the quality, consistency, and transparency of
the capital base will be raised.
➢ Tier 1 capital: the predominant form of Tier 1
capital must be common shares and retained
earnings
➢ Tier 2 capital instruments will be harmonised
➢ Tier 3 capital will be eliminated.
21. Changes in risk coverage
Second, the risk coverage of the capital framework will be strengthened.
➢ Strengthen the capital requirements for counterparty credit exposures
arising from banks’ derivatives, repo and securities financing
transactions
➢ Raise the capital buffers backing these exposures
➢ Reduce procyclicality and
➢ Provide additional incentives to move OTC derivative contracts to
central counterparties (probably clearing houses)
➢ Provide incentives to strengthen the risk management of counterparty
credit exposures
22. Changes : Leverage ratio
Third, the Committee will introduce a leverage ratio as a supplementary
measure to the Basel II risk-based framework.
➢ The Committee therefore is introducing a leverage ratio requirement
that is intended to achieve the following objectives:
➢ Put a floor under the build-up of leverage in the banking sector
➢ Introduce additional safeguards against model risk and
measurement error by supplementing the risk based measure with
a simpler measure that is based on gross exposures.
23. Changes : Capital build up
Fourth, the Committee is introducing a series of measures to
promote the build up of capital buffers in good times that can
be drawn upon in periods of stress ("Reducing procyclicality
and promoting countercyclical buffers").
* The Committee is introducing a series of measures to
address procyclicality:
o Dampen any excess cyclicality of the minimum capital
requirement;
o Promote more forward looking provisions;
o Conserve capital to build buffers at individual banks
and the banking sector that can be used in stress; and
24. Procyclicality
Procyclical is a term used in economics to describe how
an economic quantity is related to economic fluctuations.
It is the opposite of countercyclical. However, it has more
than one meaning.
In business cycle theory and finance, any economic
quantity that is positively correlated with the overall state
of the economy is said to be procyclical. That is, any
quantity that tends to increase when the overall economy
is growing is classified as procyclical. Quantities that tend
to increase when the overall economy is slowing down
are classified as 'countercyclical'.
25. Procyclicality
Gross Domestic Product (GDP) is an example of a
procyclical economic indicator. Many stock prices
are also procyclical, because they tend to
increase when the economy is growing quickly.
Unemployment is an example of a countercyclical
economic indicator.
26. Procyclicality :Meaning in policy making
Procyclical has a different meaning in the context
of economic policy. In this context, it refers to any
aspect of economic policy that could magnify
economic or financial fluctuations. An economic
policy that is believed to decrease fluctuations is
called countercyclical.
27. Procyclicality :Meaning in policy making
In particular, the financial regulations of the Basel
II Accord have been criticized for their possible
procyclicality. The accord requires banks to
increase their capital ratios when they face greater
risks. Unfortunately, this may require them to lend
less during a recession or a credit crunch, which
could aggravate the downturn. A similar criticism
has been directed at fair value accounting rules.
28. Countercyclical
Countercyclical is a term used in economics to
describe how an economic quantity is related to
economic fluctuations. It is the opposite of
procyclical. However, it has more than one
meaning.
29. Countercyclical :
Meaning in policy making
An economic or financial policy is called
'countercyclical' (or sometimes 'activist') if it works
against the cyclical tendencies in the economy.
That is, countercyclical policies are ones that cool
down the economy when it is in an upswing, and
stimulate the economy when it is in a downturn.
30. Countercyclical :
Meaning in policy making
Keynesian economics advocates the use of
automatic and discretionary countercyclical
policies to lessen the impact of the business cycle.
One example of an automatically countercyclical
fiscal policy is progressive taxation. By taxing a
larger proportion of income when the economy
expands, a progressive tax tends to decrease
demand when the economy is booming, thus
reining in the boom.
31. Countercyclical :
Meaning in policy making
Other schools of economic thought, such as
monetarism and new classical macroeconomics,
hold that countercyclical policies may be
counterproductive or destabilizing, and therefore
favor a laissez-faire fiscal policy as a better
method for maintaining an overall robust
economy.
32. Changes : Capital build up
* Achieve the broader macroprudential goal of protecting
the banking sector from periods of excess credit growth.
o Requirement to use long term data horizons to
estimate probabilities of default,
o downturn loss-given-default estimates, recommended
in Basel II, to become mandatory
o Improved calibration of the risk functions, which
convert loss estimates into regulatory capital requirements.
o Banks must conduct stress tests that include
widening credit spreads in recessionary scenarios.
33. Macroprudential Analysis
A method of economic analysis that evaluates the
health, soundness and vulnerabilities of a
financial system.
Macroprudential analysis looks at the health of the
underlying financial institutions in the system and
performs stress tests and scenario analysis to
help determine the system's sensitivity to
economic shocks.
34. Macroprudential Analysis
Macroeconomic and market data are also
reviewed to determine the health of the current
system. The analysis also focuses on qualitative
data related to financial institutions' frameworks
and the regulatory environment to get an
additional sense of the strength and vulnerabilities
in the system.
35. Changes : Capital build up
➢ Promoting stronger provisioning
practices (forward looking
provisioning):
➢ Advocating a change in the
accounting standards towards an
expected loss (EL) approach
(usually,
EL amount := LGD*PD*EAD).
36. Changes : Minimum capital
Fifth, the Committee is introducing a global
minimum liquidity standard for internationally active
banks that includes a 30-day liquidity coverage ratio
requirement underpinned by a longer-term structural
liquidity ratio.
The Committee also is reviewing the need for
additional capital, liquidity or other supervisory
measures to reduce the externalities created by
systemically important institutions.
37. Externalities
In economics, an externality (or
transaction spillover) is a cost or benefit,
not transmitted through prices, incurred by
a party who did not agree to the action
causing the cost or benefit.
A benefit in this case is called a positive
externality or external benefit, while a cost
is called a negative externality or external
cost.
38. Summary
It is hoped that the BASEL 3 updates
shall guide the banks to control their lax
lending practices.
The good option is to have better
training and testing in the Human
resources departments so that all bank
employees can be trained and made
aware of such practices.
39. Summary
If you would like to get consultants and trainers for
your employees, then please feel free to contact
us.
Regards,
Khawar Nehal
Applied Technology Research Center.
Contact : http://atrc.net.pk