...BASEL III NORMS B Y: RANJIT RAMKUMAR RASHMI.S RENUKA PRASANNA MEANING OF "BASEL III": A comprehensive set of reform measures designed to improve the regulation, supervision and risk management within the banking sector. The Basel Committee on Banking Supervision published the first version of Basel III in late 2009, giving banks approximately three years to satisfy all requirements. Largely in response to the credit crisis, banks are required to maintain proper leverage ratios and meet certain capital requirements. REASONS FOR FORMULATION OF BASEL III Reducing profitability of small banks and threat of takeover Lack of comprehensive approach to address risks Self-regulation in area of asset securitization Lack of safety Inability to strengthen the stability of financial system Failure to achieve large capital reductions Failure in enhancing the competitive equality amongst banks AIMS & OBJECTIVES OF BASEL III To minimize the probability of recurrence of crises to greater extent. To improve the banking sector's ability to absorb shocks arising from financial and economic stress. To improve risk management and governance. To strengthen banks' transparency and disclosures . To minimize the probability of recurrence of crises to greater extent. STRUCTURE OF BASEL III PILLAR 1- MINIMUM CAPITAL REQUIREMENTS Calculate required capital Required capital based on Market risk Credit risk Operational risk Used to monitor funding concentration ...
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...23/08/2012 BASEL- III GUIDELINES Background : ➢ RBI released its final guidelines on 2nd May,2012 on the implementation of Basel – III capital regulation in India. ➢ These guidelines will be effective from 1st January,2013 in a phased manner & will be fully implemented by 31st March,2018. ➢ For the FY 2013, Banks will have to disclose the capital ratios computed under the existing guidelines (Basel – II) on capital adequacy as well as those computed under the Basel – III capital adequacy framework. Purpose : • Implementation of Basel III is essential for restoring confidence in the regulatory framework for banks and to ensure a safe & stable global banking system. • Basel-III urges banks to raise the quality of Capital to absorb unexpected losses, to reduce the chance of another financial crisis. Need arose due to : • The U S sub-prime crisis has highlighted the linkages of the main types of risks, especially Credit, Market & Liquidity risks and since then the need for strengthening the capital regime has emerged prominently. Important Points : ➢ Greater focus on “Common Equity” i.e. paid up capital, reserves, retained earnings etc. raising the minimum common equity requirements from the existing 2% of risk-weighted assets to 5.50% by 31st March,2018, and a capital conservation buffer of 2.50%, bring the total common equity requirements to 8% by 2018. ➢ The overall minimum Tier – I capital requirements, which includes common equity and...
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...Regional Rural Banks) Madam / Dear Sir, Guidelines on Implementation of Basel III Capital Regulations in India Please refer to the paragraph 90 (extract enclosed) of the Monetary Policy Statement 2012-13 announced on April 17, 2012. It was indicated that the final guidelines on the implementation of Basel III capital regulations would be issued by end - April 2012. It may be recalled that draft proposals on Basel III capital regulations were issued vide circular DBOD.No.BP.BC.71/ 21.06.201/ 2011-12 dated December 30, 2011. 2. The final guidelines on Basel III capital regulations are enclosed. These guidelines would become effective from January 1, 2013 in a phased manner. The Basel III capital ratios will be fully implemented as on March 31, 2018. 3. The capital requirements for the implementation of Basel III guidelines may be lower during the initial periods and higher during the later years. While undertaking the capital planning exercise, banks should keep this in view. 4. RBI is currently working on operational aspects of implementation of the Countercyclical Capital Buffer. Guidance to banks on this will be issued in due course. Besides, certain other proposals viz. ‘Definition of Capital Disclosure Requirements’, ‘Capitalisation of Bank Exposures to Central Counterparties’ etc., are also engaging the attention of the Basel Committee 1 at present. Therefore, the final proposals of the Basel Committee on these aspects will be considered for implementation, to...
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...Roche, Novartis and UBS Syngenta which the Financial Times includes in its FT Global 500 Index as one of the most important companies worldwide Pharmaceuticals, Biotechnology & Life Sciences 4-Antibody Acino Actelion Aerosol-Service AG Bachem Basilea Beiersdorf Bühlmann Laboratories Carbogen AMCIS Cimex CIS Pharma DSM Nutritional Products AG Evolva Gaba Genedata Inotech Karger Lonza Mepha MondoBIOTECH Novartis Pentapharm Permamed Polyphor Proreo Pharma RCC Ltd. Roche Santhera S.L.A. Pharma SwissCo Services Swiss Pharma Contract Syngenta Synosia Tillots Pharma AG Triplan Vivendy Therapeutics Weleda Xenometrix ------------------------------------------------- Chemicals & Nanotechnology Acino Bachem Clariant Concentris Lonza Nanosurf Rohner Chem Rolic Solvias Swiss Nanoscience Institute Zeptosens ------------------------------------------------- ------------------------------------------------- Agribusiness & Food Bell AG Bio.inspecta AG DSM Nutritional Products Feldschlösschen Jungbunzlauer Louis Ditzler AG Ricola Syngenta Medical Technology * Camlog * Medartis * NaviSwiss * SIC invent AG Switzerland * Straumann * Synthes * Thommen Medical ------------------------------------------------- Commerce & Logistics ...
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...Corning Inc. To: From: Subject: Recommendations for the three proposals Corning Inc.’s strategy – to compete in four worldwide business sectors (communications, laboratory sciences, consumer housewares, and specialty materials) and to deliver long-range superior economic benefits to its employees, consumers, communities, and shareholders – has served the organization well for over three decades as evidenced by a transformed business portfolio, record earnings, and the emergence of a new spirit within the organization. However, due to diverse changes in trends that characterize the industry’s landscape, there is the need to come up with innovative proposals that originate from diverse business sectors. The CEO of Corning Inc. hopes that these proposals would aid in the company’s continual growth. These proposals deal with (a) the laboratory sciences, (b) communication (fiber optics), and (c), the television glass division. The opinions given are a result of a comprehensive deduction of the Porter’s Five Forces model so as to identify the best paths of actions to achieve a proper competitive advantage in the industry. For the first proposal, I think it is vital that Corning maintains its relationship with Ciba Geigy. Ciba Geigy has portrayed a strong commitment to the partnership’s success as evidenced by its willingness to preserve with significantly low returns over the next few years as the venture continues to grow. Furthermore, it has a good strategic fit with Corning Inc...
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...HISTORY OF EULER METHOD Leonhard Euler Leonhard Euler was one of the giants of 18th Century mathematics. Like the Bernoulli’s, he was born in Basel, Switzerland, and he studied for a while under Johann Bernoulli at Basel University. But, partly due to the overwhelming dominance of the Bernoulli family in Swiss mathematics, and the difficulty of finding a good position and recognition in his hometown, he spent most of his academic life in Russia and Germany, especially in the burgeoning St. Petersburg of Peter the Great and Catherine the Great. (1707 - 1783) Today, Euler is considered one of the greatest mathematicians of all time. His interests covered almost all aspects of mathematics, from geometry to calculus to trigonometry to algebra to number theory, as well as optics, astronomy, cartography, mechanics, weights and measures and even the theory of music. There are many different methods that can be used to approximate solutions to a differential equation and in fact whole classes can be taught just dealing with the various methods. We are going to look at one of the oldest and easiest to use here. This method was originally devised by Euler and is called, oddly enough, Euler’s Method. General first order IVP; Where f(t,y) is a known function and the values in the initial condition are also known numbers. From the second theorem in...
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...Basel II to Basel III: Changes and Requirements Hesham Hamdy Chief Risk Officer, Arab International Bank Nairobi, 7-8 March 2012 Basel; what is it? • A New Standard for the Measurement of Risks in Banks, and for the Allocation of Capital to cover those risks, published by the Basel Committee of G10 Central Banks. • What Does Basel Committee Do? - Acts as Think-Tank for banking regulators - Issues guidance on best practice for banks - Standards accepted worldwide - Generally incorporated in national banking regulations Basel I • Basel I was the round of deliberations by central banks from around the world, and in 1988, the Basel Committee (BCBS) in Basel, Switzerland, published a set of minimum capital requirements for banks. This was known as the 1988 Basel Accord, and was enforced by law in the Group of Ten (G-10) countries in 1992 . • Basel I primarily focused on credit risk. Assets of banks were classified and grouped in five categories according to credit risk, carrying risk weights of zero (for example home country sovereign debt), ten, twenty, fifty, and up to one hundred percent (this category has, as an example, most corporate debt). Basel I (continued) • Banks with international presence were required to hold capital equal to 8 % of the risk-weighted assets. • Basel I was then widely viewed as outmoded because the world has changed as financial corporations, financial innovation and risk management have developed. Therefore, a more comprehensive set of...
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...CHAPTER I INTRODUCTION 1.1 Background Basel Capital accord is a capital adequacy framework developed by the Basel committee. In 1988, the Basel Committee decided to introduce a capital measurement system commonly referred to as the Basel Capital Accord. This system provided for the implementation of a credit risk measurement framework with a minimum capital requirement of 8% on banks Risk Weighted Assets (RWA). The 1988 framework is also known as "Basel – I". Since 1988, this framework has been progressively introduced not only in member countries but also virtually in all other countries. The "international convergence on capital measurement and capital standard -2004" is popularly known as Basel-II. It is a capital adequacy related standard framed by Basel committee. After the successful implementation of 1988 accord in more than 100 countries, the Basel Committee on Banking Supervision reached an agreement on a number of important issues for promoting best and uniform banking practices as well as setting standards and guidelines for supervisory function. Following extensive interaction with banks, industry groups and supervisory authorities that are not members of the Committee, the revised framework was issued on 26 June 2004, which is being regularly revised and updated. The Basel-II aims to replace Basel I and to make the capital framework more risk sensitive. Basel II has recommended major revision on the...
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...Analysing the strengths, weaknesses and effects of Capital adequacy, moral hazard and banking operations using current financial regulations in the UK. Basel 3 After the recent global financial crisis, the Basel Committee on Banking Supervision (BCBS) decided to revise its previous Basel Accords and reform it; resulting in the implementation of Basel III. Basel I was considered extremely simple in its application and relatively easy to reduce capital with very little risk, through off-balance sheet activities therefore reducing the value of capital the bank required. There was poor management of the risk taken by banks and the guidelines were subject to “regulatory arbitrage, this is where banks keep on their books assets that have the same risk-based capital requirements but are quite risky i.e loans to companies with high credit ratings.” /\ /\ /\ BOOK Basel II although was more risk sensitive through its use of three pillars; which were minimum capital requirements, supervisory review and market discipline, it wasn’t adequate enough to prevent the global financial crisis. The first pillar sets capital requirements against the risks; credit risk, market risk, and operational risk. The second pillar allows supervisors to review the banks performance and activities and thus decide whether they require holding more capital than what was calculated within pillar one. The third pillar motivates banks to manage their risks sensibly through increasing the banks transparency...
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...companies in banking industry, also holdings certain assets of cash and equity. The report sets the bank’s capital requirement with the requirement of Basel Accords in order to build up sustainable positive capital frequently to avoid losses, liabilities and liquidity. Firstly, the report analyzes the risk management under current assets of Marylebone by applying the VaR methods, such as Variance – Covariance, Historical Simulation and Extended Historical Simulation, in order to have criticisms under each method on the effectiveness. The reports will continuously measure and manage each category under Basel Accords regulation: Market Risk, Credit Risk and Operational Risk. Furthermore, all five Basel Accords including: Basel 1(1988 BIS Accord), Basel 1 (1996 Amendment), Basel 2, Basel 2.5 and Basel 3 will be taken into account in order to develop the framework in details. Finally, the report concludes with the core concept of capital, the influences of risk management and capital requirement under the banking regulation using example of the most recent Global Recession. TABLE OF CONTENT I. Introduction 4 II. Market Risk Capital Charge Estimation 4 1. Variance - Covariance Method 4 2. Historical Simulation Method 5 III. Credit Risk and Operational Risk Estimation under different Basel Accords 6 3. Under Basel 1 (1988 BIS Accord) 6 1.1 On-balance-sheet calculation 7 1.2 Off-balance-sheet...
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...Minimum Capital Provisioning for Credit Risk – a Comparative Study of Basel I and Basel II Contact: Pradnya Desai Manager– Rating Analyst +62 21 576 1516 desai.pradnya@icraindonesia.com Drafted in 1988 and 2004 respectively, Basel I and II have, through quantitative and technical benchmarks, helped develop a level playing field in the banking The “Basel Committee on Banking Supervision” (BCBS) is comprised of the central banks and regulatory authorities of mainly the G20 countries (including Indonesia) and other leading nations. The committee issues broad guidelines and standards to ensure best practices in the banking supervision and risk management. (Source: www.bis.org) supervision, regulation and capital adequacy standards across the signatory nations. As of today, more than 100 countries have implemented Basel I and around 112 countries are implementing Basel II (Source: Wikipedia, Basel committee on banking supervision survey, 2010). Basel II generated more interest on account of the multitude of financial crises that the world economy faced during the 1990s and early 2000s. Further, its implementation gained momentum among the emerging economies after the 2008 crisis. While many countries have already commenced Basel III (drafted in 2010) implementation, Indonesia is yet to finalise the norms on the subject. Basel III while relevant at a future date will not be implemented in the near future and hence this article has confined itself to Basel II. This article limits...
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...Members | | Argentina | Central Bank of Argentina | Australia | Reserve Bank of Australia Australian Prudential Regulation Authority | Belgium | National Bank of Belgium | Brazil | Central Bank of Brazil | Canada | Bank of Canada Office of the Superintendent of Financial Institutions | China | People's Bank of China China Banking Regulatory Commission | European Union | European Central Bank European Central Bank Single Supervisory Mechanism | France | Bank of France Prudential Supervision and Resolution Authority | Germany | Deutsche Bundesbank Federal Financial Supervisory Authority (BaFin) | Hong Kong SAR | Hong Kong Monetary Authority | India | Reserve Bank of India | Indonesia | Bank Indonesia Indonesia Financial Services Authority | Italy | Bank of Italy | Japan | Bank of Japan Financial Services Agency | Korea | Bank of Korea Financial Supervisory Service | Luxembourg | Surveillance Commission for the Financial Sector | Mexico | Bank of Mexico Comisión Nacional Bancaria y de Valores | Netherlands | Netherlands Bank | Russia | Central Bank of the Russian Federation | Saudi Arabia | Saudi Arabian Monetary Agency | Singapore | Monetary Authority of Singapore | South Africa | South African Reserve Bank | Spain | Bank of Spain | Sweden | Sveriges Riksbank Finansinspektionen | Switzerland | Swiss National Bank Swiss Financial Market Supervisory Authority FINMA | Turkey | Central Bank of the Republic of Turkey ...
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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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...CMYK CMYK Wo r k i n g P a p e r The Indian Journey to Basel II: Implementing Risk Management in Banks Dr. SS Satchidananda Sanjeev Shukla CBIT Centre of Banking and Information Technology Indian Institute of Information Technology 26/C, Electronic City, Bangalore And Oracle India Pvt. Ltd., DLF Corporate Park Block I DLF City Phase III Gurgaon 122002 CMYK CMYK CMYK CMYK CBIT Centre of Banking and Information Technology Indian Institute of Information Technology 26/C, Electronic City, Bangalore And Oracle India Pvt. Ltd., DLF Corporate Park Block I DLF City Phase III Gurgaon 122002 CMYK CMYK CMYK CMYK The Indian Journey to Basel II Implementing Risk Management in Banks ABSTRACT In this paper, we provide a perspective on the international regulatory framework for capital standards and its focus on implementation of risk management systems in banks with particular reference to the Indian scenario. We also discuss the Indian regulatory approach to this important challenge and the major issues involved in the Basel II implementation in the Indian context. We conclude with guidance for developing an implementation plan for ushering in effective and efficient risk management in banks. {SS Satchidananda1 Sanjeev Shukla2 } Banking in modern economies is all about risk management. The successful negotiation and implementation of Basel II Accord is likely to lead to an even sharper focus on the risk measurement and risk...
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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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