...source is stated. ISBN print: 92-9131-859-0 ISBN web: 92-9197-859-0 Contents Contents ...................................................................................................................................3 Introduction ...............................................................................................................................1 A. Strengthening the global capital framework ....................................................................2 1. 2. 3. 4. Raising the quality, consistency and transparency of the capital base ..................2 Enhancing risk coverage........................................................................................3 Supplementing the risk-based capital requirement with a leverage ratio ...............4 Reducing procyclicality and promoting countercyclical buffers ..............................5 Cyclicality of the minimum requirement .................................................................5 Forward looking provisioning .................................................................................6 Capital conservation...............................................................................................6 Excess credit growth ..............................................................................................7 5. B. 1. 2. 3. C. D. I. Addressing systemic risk and interconnectedness...
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...Publication-October 2014 Basel Banking Norms – A Primer1 Abstract This paper aims to first build a deeper understanding of the emergence of Basel banking norms (Basel I), and the transition to each of the subsequent regulations (Basel II and Basel III). The primary purpose of developing this understanding is to further analyze the extent of effectiveness of the Basel norms. To explore how such regulations impact an economy, we have specifically looked at five economies of the world (including India), which are geographically apart, in this context. The idea here is to study how, for instance, banking institutions have shaped up to these norms – and whether the effects were favorable or adverse. We then conclude by conceptually looking at the future direction of regulations such as the Basel norms in the banking industry. Keywords: Banking, Financial Services, Regulation, Basel Norms, Capital Adequacy, Liquidity 1 The authors would like to thank Dr. Anupam Prakash, Ms. Sharada Shimpi, Ms. Lavanya Srinivasan and Ms. Shara Bhattacharjee for their inputs. They are also grateful to the participants of the internal seminar at IIMB for their suggestions. The WP originated as a term project in 2013 for the first two authors, PGP students at IIMB. 2 IIMB-WP N0. 470 Introduction The...
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...FORE School of Management A DISSERTATION REPORT ON Impact of Basel III norms on select Indian & European banks Submitted By: DEEPANSHU CHANDRA, 053009 FORE SCHOOL OF MANAGEMENT, DELHI A Report submitted in partial fulfilment of the requirement of Post Graduate Diploma Program in Management SUBMITTED TO: Faculty Guide: Prof. Sanghamitra Buddhapriya FORE School of Management 1 FORE School of Management CERTIFICATE This is to certify that Mr. Deepanshu Chandra has completed his Dissertation under my guidance and has submitted this project report entitled Impact of Basel III norms on select Indian and European banks towards partial fulfilment of the requirements for the award of the Post Graduate Diploma Program in Management (FORE, Delhi) 2011-2013. This Report is the result of his own work and to the best of our knowledge. This project was carried out under my overall supervision. Date: Place: ---------------------------------- Prof. Sanghamitra Buddhapriya (Faculty Guide) FORE School of Management 2 FORE School of Management ACKNOWLEDGEMENT I would like to take this opportunity to thank all those who helped me in the successful completion of my Dissertation. To start with, I would like to thank the organization FORE School of Management for providing me the chance to undertake this Dissertation. I wish to place on records, my deep sense of gratitude and sincere appreciation to my Mentor, Prof. Sanghamitra Buddhapriya, Faculty...
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...BASEL III NORMS AND INDIAN BANKING: ASSESSMENT AND EMERGING CHALLENGES C.S.Balasubramaniam Professor, Babasaheb Gawde Institute of Management Studies, Mumbai Email: balacs2001@yahoo.co.in ABSTRACT Banking operations worldwide have undergone phenomenal changes in the last two decades since 1990s. Financial liberalization and technological innovations have created new and complex financial instruments/products have increased their role and turnover in financial markets and have rendered banking operations vulnerable to a variety of risks. The financial crisis episodes surfaced since 2006 have highlighted this paradox to a number of central banks operating in different countries and RBI and Indian banking sector is no exception to this phenomenon. Basel framework has been drawn by Bank for International Settlements (BIS) in consultation with supervisory authorities of banking sector in fifteen emerging market countries with the basic objective of advocating codes of bank supervision and promoting financial stability amidst economic crises. This research paper is divided in three parts .The opening part attempts to briefly describe the changes in the banking scenario since 1991 reforms and the necessity of introducing Basel III to the Indian Banking sector. Part II presents the Basel standards framework and explains why the transition from Basel II to Basel III norms has become necessary to bring in measures and safety standards which would equip the banks to become more resilient...
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...12 2010 that it has approved the capital and liquidity improvement package initially proposed in December 2009 and modified in July 2010, identified as Basel 3(Adrian B. W. 77). The Basel 3 package was recommended to ensure that the monetary system cannot experience the type of collapse and resulting economic slowdown that took place between 2007 and 2009. Even though the effects of the Basel 3 rules on an individual bank will depend on its asset/capital base and on the appropriate regulator's appliances of the rules, the publication of the standardized ratios and rules is one of the most important developments for banks ever since the disaster began. Banks can now concentrate on a future policy to meet the combined impacts of these rules (BCBS et al.). The Basel 3 rules that a bank should hold 4.5%of the common equity. This essentially consists of common shares in addition to retained earnings. The rules call for banks to have 4.5% of common equity (Kane, E.J 88). The total Tier 1 requirement rises from 4% to 6% under the rule. This implies that other forms of Tier 1 requirement will account for up to 1.5% of Tier 1 capital. The entire minimum capital requirements stand at 8%, subject to a new capital buffer. Nevertheless, 6% of capital has to be Tier 1, which denotes that Tier 2 can account for less than 2% of capital. Tier 3, which is used exclusively for market risk purposes, will be removed entirely. Under Basel III, deductions from capital have to be made from ordinary equity...
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...Basel I The Basel Accords are some of the most influential—and misunderstood—agreements in modern international finance. Drafted in 1988 and 2004, Basel I and II have ushered in a new era of international banking cooperation. Through quantitative and technical benchmarks, both accords have helped harmonize banking supervision, regulation, and capital adequacy standards across the eleven countries of the Basel Group and many other emerging market economies. On the other hand, the very strength of both accords—their quantitative and technical focus—limits the understanding of these agreements within policy circles, causing them to be misinterpreted and misused in many of the world’s political economies. Moreover, even when the Basel accords have been applied accurately and fully, neither agreement has secured long-term stability within a country’s banking sector. Therefore, a full understanding of the rules, intentions, and shortcomings of Basel I and II is essential to assessing their impact on the international financial system. This paper aims to do just that—give a detailed, non-technical assessment of both Basel I and Basel II, and for both developed and emerging markets, show the status, intentions, criticisms, and implications of each accord. Basel I Soon after the creation of the Basel Committee, its eleven member states (known as the G-10) began to discuss a formal standard to ensure the proper capitalization...
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...Comparative Economic Studies, 2015, (31–54) © 2015 ACES. All rights reserved. 0888-7233/15 www.palgrave-journals.com/ces/ Survey Article The Effects of Bank Regulation on the Relationship Between Capital and Risk ALESSANDRA TANDA Department of Economics, Management and Quantitative Methods, Università degli Studi di Milano, Via Conservatorio, 7, Milan 20122, Italy. E-mail: alessandra.tanda@unimi.it Capital regulation acts as an external force in the determination of bank capital and risk levels. Changes in the regulatory framework can influence banks’ decisions. Starting from the debate of the prudential regulation after the financial crisis, this paper reviews the main empirical contributions on the role of capital regulation in the determination of banks’ capital ratios and risk exposure to evaluate bank behavior. Capital and risk decisions seem to be effectively influenced by regulation, although results may vary according to factors such as time period, country, and the type of capital analyzed. Comparative Economic Studies (2015) 57, 31–54. doi:10.1057/ces.2014.35; published online 22 January 2015 Keywords: bank regulation, capital, Basel, risk, literature review JEL Classification: G2 INTRODUCTION The latest financial crisis has highlighted how bank capital regulation is necessary for the stability of the financial system. But also, it appears that it is not sufficient to ensure that banks’ decisions, in terms of risk and capital, are consistent...
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...END TERM PROJECT COMMERCIAL BANK MANAGEMENT TOPIC 5 BANK CAPITAL MANAGEMENT- CAPITAL ADEQUACY FRAMEWORK Submitted to: Submitted by: Group 5 Prof. D.N. Panigrahi Abhishek Singh (2014013) Anisha jain (2014042) Bakul Malik (2014072) Gurusha Godwani (2014100) Ketki Chaturvedi (2014133) CHAPTER 1 BANK CAPITAL MANAGEMENT- CAPITAL ADEQUACY FRAMEWORK INTRODUCTION Bank capital is often defined in tiers or categories that include shareholders' equity, retained earnings, reserves, hybrid capital instruments, and subordinated term debt. Capital ratios are commonly measured as a percent of bank assets or risk-weighted bank assets. Bank capital serves as an important cushion against unexpected losses. It creates a strong incentive to manage a bank in a prudent manner, because the bank owners’ equity is at risk in the event of a failure. Thus, bank capital plays a critical role in the safety and soundness of individual banks and the banking system. Role of bank capital: • Source of funds – Start-up costs – Growth or expansion (mergers and acquisitions) – Modernization costs • Cushion to absorb unexpected operating losses – Insufficient capital to absorb losses will cause insolvency – Long-term debt can only absorb losses in the event of institution failure • Adequate capital – Regulatory requirements to promote bank safety and soundness – Mitigate moral hazard problems of deposit insurance by increasing shareholders’ exposure to bank...
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...began, its lingering effects are still all too visible in advanced countries and emerging markets alike: the global recession left in its wake a worldwide increase of 30 million in the number of people unemployed. These are painful reminders of why there is a need to improve our understanding of financial crises. This book serves this purpose by bringing together a number of innovative studies on the causes and consequences of financial crises and policy responses to them. Although there is a rich literature on financial crises, there has been no publication since the recent financial crisis providing in one place a broad overview of this research and distilling its policy lessons. The book fills this critical gap. It covers a wide range of crises, including banking, balance-of-payments, and sovereign debt crises. It reviews the typical patterns prior to crises and considers lessons on their antecedents, analyzes the evolution of crises and examines various policy responses––in terms of macroeconomic policies, restructuring of banks, households, financial institutions and sovereigns, and studies their aftermath––in terms of short- and medium-term growth impacts, and financial and fiscal consequences. It includes contributions from outstanding...
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...financial crisis since the great depression in the 1930’s. It negatively impacted global financial markets, led to the collapse of major financial institutions, the nationalisation of banks and caused a deep global recession. From its beginnings in the United States, networked financial institutions quickly led to international contagion and the European sovereign debt crisis. In response, the G20 officially endorsed Basel III – a new global standard to reduce systemic risk through stronger capital bases designed to act as a buffer during periods of financial instability and avoid bailouts. Sustained European government efforts to reduce debt through austerity have largely failed, and focus is now shifting to growth strategies. Entrepreneurial start-ups are a key route to driving long-term sustainable growth, but have been hit hard by sluggish consumer demand, tightening credit and scarce, expensive capital. This report discussed some of the implications for both entrepreneurs and Venture Capital funds, including flight-from-risk, fewer opportunities for profitable exits, lower funding levels and reduced number and diversity of VC funds. Exciting new opportunities have also emerged in new types of business incubators and alternative funding structures. I: Key financial trends This section will focus on three major trends and events that have had a...
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...BASEL NORMS – BOON OR BANE? BY Pallabi ROY (PGDMB13/035) PRITAM SATHPATY (PGDMB13/077) SAGAR CHoUDHARY (PGDMB13/081) SHERIN MATHEWS (PGDMB13/049) SOHINI BANERJEE (PGDMB13/052) TUSHAR SHARMA (PGDMB13/086) table of contents TOPIC PAGE NO. 1. INTRODUCTION 1 2. Importance of Regulation of Bank Capital 2 3. BCBS : A Historical Background 3 4. BASEL I ACCORD 4 I. SALIENT FEATURES 5 II. ADVANTAGES OF BASEL I 9 III. SHORTCOMINGS OF BASEL I 11 5. baSEL II 13 I. from basel i to basel ii - the journey continues 13 II. OBJECTIVES 15 III. THE ACCORD IN OPERATION 15 IV. IMPACT OF BASEL II ON INDIA 26 a. IMPACT ON THE INDIAN BANKING SYSTEM 26 b. POSITIVE IMPACT 27 c. NEGATIVE IMPACT 29 V. Basel II and the global financial crisis 30 6. BASEL III 32 I. INTRODUCTION 32 II. OBJECTIVES 32 III. CHANGES MADE IN THE BASEL ACCORD 33 IV. COMPARISON OF CAPITAL REQUIREMENTS UNDER 39 BASEL II AND BASEL III V. macroeconomic impact of basel iii 40 A. Impact on Individual Banks 40 B. IMPACT ON THE FINANCIAL SYSTEM 40 C. impact of basel iii on the indian 42 banking system VI. RBI GUIDELINES 44 VII. CONCERNS WITH BASEL III 45 7. CONCLUSION ` 50 Introduction Banks are...
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...Travelling Along the Third Way. A Swedish Model of Stabilisation, Equity and Growth* Lennart Erixon ♣ (December, 2005) Department of Economics, Stockholm University, 106 91 Stockholm, Sweden _____________________________________________________________________ Abstract The Swedish economic policy to combine full employment and equity with price stability and economic growth was developed by two trade union economists shortly after World War II. Through the use of extensive employment policy measures, a tight fiscal policy and a wage policy of solidarity, the Rehn-Meidner model represents a unique third way between Keynesianism and monetarism. This essay analyses the application and performance of the Rehn-Meidner model in Sweden. Although never consistently applied, it is possible to distinguish a golden age for the model from the late 1950s to the early 1970s. In the 1970s and the 1980s, governments abandoned the restrictive macroeconomic means of the model and were thus unable to combine low rates of unemployment with low inflation and high economic growth. Since the early 1990s, Sweden has not met the requirement of full employment in the Rehn-Meidner model. Recent declarations by the EU to prioritise full employment once again but without giving up the objectives of price stability and growth legitimise a renewed interest in the model. __________________ JEL classification: E24; E31; E62; J23; J31; J62; O23 Keywords: Swedish model; Rehn-Meidner...
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...THE BASEL CAPITAL ACCORDS BY JOE LARSON APRIL 2011 I. Introduction Banks are a vital part of a nation’s economy. In their traditional role as financial intermediaries, banks serve to meet the demand of those who need funding. As such, banks make it possible for people to buy homes and for businesses to expand. Banks therefore facilitate spending and investment, which fuel growth in the economy. However, despite their important role in the economy, banks are nevertheless susceptible to failure. Banks, like any other business, can go bankrupt. However, unlike most other businesses, the failure of banks, especially very large ones, can have far-reaching implications. As we saw during the Great Depression and, most recently, during the global financial crisis and the ensuing recession, the health of the bank system (or lack thereof) can trigger economic calamities affecting millions of people. Consequently, it is imperative that banks operate in a safe and sound manner to avoid failure. One way to ensure this is for governments to provide diligent regulation of banks. Yet, with the advent of globalization, banking activities are no longer confined to the borders of any individual country. With cross-border banking activities rapidly increasing, the need for international cooperation in bank regulation has likewise increased. Ready to meet this need is the Basel Committee on Bank Supervision (BCBS). In its role as the international advisory authority on bank regulation, the BCBS...
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...Banking Awareness Study Material Shared by Rajesh Kumar and Bhavya Vadudevan www.Gr8AmbitionZ.com your A to Z competitive exam guide Page 1 Banking Awareness Study Material - powered by Gr8AmbitionZ.com Indian Banking Structure a) b) c) d) e) Central Bank (RBI) Specialised Banks Commercial Banks Development Banks Co-operative Banks Specialised Banks: NABARD: National Bank for Agriculture and Rural Development. This bank is meant for financing the agriculture as well as rural sector. It actually promotes research in agriculture and rural development. EXIM Bank: Export Import Bank of India. This bank gives loans to exporters and importers and also provides valuable information about the international market. If you want to set up a business for exporting products abroad or importing products from foreign countries for sale in our country, EXIM bank can provide you the required support and assistance. SIDBI: Small Industries Development Bank of India. This bank provides loans to set up the smallscale business unit / industry. SIDBI also finances, promotes and develops small-scale industries whereas IDBI (Industrial Development Bank of India) gives loans to big industries. Gr Commercial Banks: Normal banks are known as commercial banks, their main function is to accept deposits from the customer and on the basis of that they grant loans. (Loans could be short-term, mediumterm and long-term loans.) Commercial banks are further classified into three types...
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...ICB Independent Commission on Banking Final Report Recommendations September 2011 ICB Independent Commission on Banking Final Report Recommendations September 2011 Official versions of this document are printed on 100% recycled paper. When you have finished with it please recycle it again. If using an electronic version of the document, please consider the environment and only print the pages which you need and recycle them when you have finished. © Crown copyright 2011 You may re-use this information (excluding logos) free of charge in any format or medium, under the terms of the Open Government Licence. To view this licence, visit www.nationalarchives.gov.uk/doc/open-governmentlicence/ or e-mail: psi@nationalarchives.gsi.gov.uk. Where we have identified any third party copyright information you will need to obtain permission from the copyright holders concerned. Any enquiries regarding this publication should be sent to: Independent Commission on Banking Victoria House Southampton Row London WC1B 4AD This document is also available from our website at http://bankingcommission.independent.gov.uk/ ISBN 978-1-845-32-829-0 Produced by the Domarn Group, London. Final Report Contents Contents ...................................................................................................................... 1 List of acronyms .........................................................................................
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