Basel

What is Basel iii or What is Basel 3 Accord or Meaning and Definition of Basel III Accord:- Ads by GoogleBasel III or Basel 3 released in December, 200is the third in the series of Basel Accords!"hese accords deal #ith ris$ management as%ects for the ban$ing sector! In a n&t shell #e can say that Basel iii is the global reg&latory standard 'agreed &%on by the members of the Basel (ommittee on Ban$ing )&%er*ision+on ban$ ca%ital ade,&acy, stress testing and mar$et li,&idity ris$! 'Basel I and Basel II are the earlier *ersions of the same, and #ere less stringent+ What does Basel III is all Abo&t - According to Basel (ommittee on Ban$ing )&%er*ision .Basel III is a com%rehensi*e set ofreform meas&res, de*elo%ed by the Basel (ommittee on Ban$ing )&%er*ision, to strengthenthe reg&lation, s&%er*ision and ris$ management of the ban$ing sector.! "h&s, #e can say that Basel 3 is only a contin&ation of effort initiated by the Basel (ommittee on Ban$ing )&%er*ision to enhance the ban$ing reg&latory frame#or$ &nder Basel I and Basel II! "his latest Accord no# see$s to im%ro*e the ban$ing sector/s ability to deal #ith financial and economic stress, im%ro*e ris$ management and strengthen the ban$s/ trans%arency! What are the ob0ecti*es 1 aims of the Basel IIImeas&res - Basel 3 meas&res aim to: 2im%ro*e the ban$ing sector/s ability to absorb shoc$s arising from financial and economic stress, #hate*er the so&rce 2im%ro*e ris$ management and go*ernance 2strengthen ban$s/ trans%arency and disclos&res! "h&s #e can say that Basel III g&idelines are aimed at to im%ro*e the ability of ban$s to #ithstand %eriods of economic and financial stress as the ne# g&idelines are more stringentthan the earlier re,&irements for ca%ital and li,&idity in the ban$ing sector! 3o# Does Basel III 4e,&irements Will Affect Indian Ban$s : "he Basel III #hich is to be im%lemented by ban$s in India as %er the g&idelines iss&ed by 4BI from time to time, #ill be challenging tas$ not only for the ban$s b&t also for G5I!It is estimated that Indian ban$s #ill be re,&ired to rais 4s 6,00,000 crores in e7ternal ca%italin ne7t nine years or so i!e! by 2020 '"he estimates *ary from organisation to organisation+! 87%ansion of ca%ital to this e7tent #ill affect the ret&rns on the e,&ity of these ban$s s%ecially %&blic sector ban$s!3o#e*er, only consolation for Indian ban$s is the fact that historically they ha*e maintained their core and o*erall ca%ital #ell in e7cess of the reg&latory minim&m! What are "hree 9illars of Basel II :orms or What are the changes in "hree 9illars of Basel iii Accord - Basel III: "hree 9illars )till )tanding : Ads by GoogleAny one #ho has e*er heard abo&t Basel I and II,is most li$ely m&st ha*e heard abo&t "hree 9illars of Basel! "hree 9illar of Basel still stand &nder Basel 3!Basel III has essentiallybeen designed to address the #ea$nesses that become too ob*io&s d&ring the 200; financial crisis #orld faced! "he intentof the Basel (ommittee seems to %re%are the ban$ing ind&stry for any f&t&re economic do#nt&rns!! "he frame#or$ enhances ban$-s%ecific meas&res and incl&des macro-%r&dential reg&lations to hel% create a more stable ban$ing sector! "he basic str&ct&re of Basel III remains &nchanged #ith three m&t&ally reinforcing %illars! 9illar: Minim&m 4eg&latory (a%ital 4e,&irements based on 4is$ Weighted Assets '4WAs+ : Maintaining ca%ital calc&lated thro&gh credit, mar$et and o%erational ris$ areas!9illar 2 :)&%er*isory 4e*ie# 9rocess : 4eg&lating tools and frame#or$s for dealing #ith %eri%heral ris$s that ban$s face!9illar 3: Mar$et Disci%line : Increasing the disclos&res that ban$s m&st %ro*ide to increase the trans%arency of ban$s What are the Ma0or (hanges 9ro%osed in Basel III o*er earlier Accords i!e! Basel I and Basel II-What are the Ma0or ?!"he aim ofas$ing to b&ild conser*ation b&ffer is to ens&re that ban$s maintain a c&shion of ca%ital that can be &sed to absorb losses d&ring %eriods of financial and economic stress! 'c+ (o&ntercyclical B&ffer: "his is also one of the $ey elements of Basel III! "he co&ntercyclical b&ffer has been introd&cted #ith the ob0ecti*e to increase ca%ital re,&irements in good times and decrease the samein bad times!"he b&ffer #ill slo# ban$ing acti*ity #hen it o*erheats and #ill enco&rage lending #hen times are to&gh i!e! in bad times!"he b&ffer #ill range from 0? to 2!>?, consisting of common e,&ity or other f&lly loss-absorbing ca%ital! 'd+ Minim&m (ommon 8,&ity and "ier(a%ital 4e,&irements : "he minim&m re,&irement for common e,&ity, the highest form of loss-absorbing ca%ital, has been raised&nder Basel III from2? to @!>? of total ris$-#eighted assets!"he o*erall "ierca%ital re,&irement, consisting of not only common e,&ity b&t also other ,&alifying financial instr&ments, #ill also increase from the c&rrent minim&m of @? to 6?! Altho&gh the minim&m total ca%ital re,&irement #ill remain at the c&rrent ;? le*el, yet the re,&ired total ca%ital #ill increase to 0!>? #hen combined #ith the conser*ation b&ffer! 'e+ Ae*erage 4atio: A re*ie# of the financial crisis of 200; has indictedthat the *al&e of many assets fell ,&ic$er than ass&med from historical e7%erience! "h&s, no# Basel III r&les incl&de a le*erage ratio to ser*e as a safety net!A le*erage ratio is the relati*e amo&nt of ca%ital to total assets 'not ris$-#eighted+! "his aims to %&t a ca% on s#elling of le*erage in the ban$ing sector on a global basis! 3?le*erage ratio of "ier#ill be tested before a mandatory le*erage ratio is introd&ced in Ban&ary 20;! 'f+ Ai,&idity 4atios:Cnder Basel III, a frame#or$ for li,&idity ris$ management #ill be created! A ne# Ai,&idity (o*erage 4atio 'A(4+ and :et )table +Minim&m :et )table