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    Basel Norms: Basel Is A City in Switzerland

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    Basel norms refer to the Basel Accords established by the Basel Committee on Banking Supervision (BCBS) to ensure banks have enough capital reserves to meet obligations and absorb losses. The Basel Accords have established three Basel norms: Basel I established minimum capital requirements of 8% of risk-weighted assets and focused on credit risk. Basel II refined Basel I and introduced requirements for operational risk, market risk and disclosure. Basel III was introduced in response to the 2008 financial crisis and aims to promote bank resilience by focusing on capital, leverage, funding and liquidity.

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    Basel Norms: Basel Is A City in Switzerland

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    Basel norms refer to the Basel Accords established by the Basel Committee on Banking Supervision (BCBS) to ensure banks have enough capital reserves to meet obligations and absorb losses. The Basel Accords have established three Basel norms: Basel I established minimum capital requirements of 8% of risk-weighted assets and focused on credit risk. Basel II refined Basel I and introduced requirements for operational risk, market risk and disclosure. Basel III was introduced in response to the 2008 financial crisis and aims to promote bank resilience by focusing on capital, leverage, funding and liquidity.

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    Basel Norms

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    Basel norms refer to the Basel Accords established by the Basel Committee on Banking Supervision (BCBS) to ensure banks have enough capital reserves to meet obligations and absorb losses. The Basel Accords have established three Basel norms: Basel I established minimum capital requirements of 8% of risk-weighted assets and focused on credit risk. Basel II refined Basel I and introduced requirements for operational risk, market risk and disclosure. Basel III was introduced in response to the 2008 financial crisis and aims to promote bank resilience by focusing on capital, leverage, funding and liquidity.

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    66 views3 pages

    Basel Norms: Basel Is A City in Switzerland

    Uploaded by

    subhasis123bbsr
    Basel norms refer to the Basel Accords established by the Basel Committee on Banking Supervision (BCBS) to ensure banks have enough capital reserves to meet obligations and absorb losses. The Basel Accords have established three Basel norms: Basel I established minimum capital requirements of 8% of risk-weighted assets and focused on credit risk. Basel II refined Basel I and introduced requirements for operational risk, market risk and disclosure. Basel III was introduced in response to the 2008 financial crisis and aims to promote bank resilience by focusing on capital, leverage, funding and liquidity.

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    of 3

    BASEL NORMS

    Introduction
    Basel is a city in Switzerland which is also the headquarters of Bureau of
    International Settlement (BIS).
     BIS fosters co-operation among central banks with a common goal of
    financial stability and common standards of banking regulations.
     The Bank for International Settlements (BIS) established on 17 May
    1930, is the world's oldest international financial organisation. There are
    two representative offices in the Hong Kong and in Mexico City. In total
    BIS has 60 member countries from all over the world and covers approx
    95% of the world GDP.

    Objective
     The set of the agreement by the BCBS (BASEL COMMITTEE ON BANKING
    SUPERVISION), which mainly focuses on risks to banks and the financial
    system are called Basel accord.
     The purpose of the accord is to ensure that financial institutions have
    enough capital on account to meet the obligations and absorb
    unexpected losses.
     India has accepted Basel accords for the banking system.
     BASEL ACCORD has given us three BASEL NORMS which are BASEL 1,2
    and 3.
    Before coming to that we have to understand following terms-

     CAR/CRAR- Capital Adequacy Ratio/ Capital to Risk Weighted


    Asset Ratio
     RWA- Risk Weighted Assets
    ⇒Formulae for CAR=Total Capital/RWA*100

    ⇒ Now here, Total Capital= Tier1+ Tier2 capital

    Tier 1 - The Tier- I Capital is the core capital


    Paid up Capital, Statutory Reserves, Other disclosed free reserves, Capital
    Reserves which represent surplus arising out of the sale proceeds of the
    assets, other intangible assets belong from the category of Tier1 capital.

    Tier 2 - Tier-II capital can be said to be subordinate capitals.


    Undisclosed reserves, Revaluation Reserves, General Provisions and loss
    reserves , Hybrid debt capital instruments such as bonds, Long term
    unsecured loans, Debt Capital Instruments etc belong from the category of
    Tier 2 capital.
    Risk Weighted Assets
    RWA means assets with different risk profiles; it means that we all know that
    is much larger risk in personal loans in comparison to the housing loan, so
    with different types of loans the risk percentage on these loans also varies.

    BASEL-I
     In 1988, The Basel Committee on Banking Supervision (BCBS)
    introduced capital measurement system called Basel capital accord, also
    called as Basel 1.
     It focused almost entirely on credit risk, It defined capital and structure
    of risk weights for banks.
     The minimum capital requirement was fixed at 8% of risk-weighted
    assets (RWA).
     India adopted Basel 1 guidelines in 1999.

    BASEL-II
    In 2004, Basel II guidelines were published by BCBS, which were considered
    to be the refined and reformed versions of Basel I accord.
    The guidelines were based on three parameters which are as follows
     Banks should maintain a minimum capital adequacy requirement of 8%
    of risk assets.
     Banks were needed to develop and use better risk management
    techniques in monitoring and managing all the three types of risks that
    is credit and increased disclosure requirements.
     The three types of risk are- operational risk, market risk, capital risk.
     Banks need to mandatory disclose their risk exposure, etc to the central
    bank.
     Basel II norms in India and overseas are yet to be fully implemented.

    The three pillars of BASEL-3 can be understood from the following


    figure
    BASEL-3

    Basel III
     In 2010, Basel III guidelines were released. These guidelines were
    introduced in response to the financial crisis of 2008.
     In 2008, Lehman Brothers collapsed in September 2008, the need for a
    fundamental strengthening of the Basel II framework had become
    apparent.
     Basel III norms aim at making most banking activities such as their
    trading book activities more capital-intensive.
     The guidelines aim to promote a more resilient banking system by
    focusing on four vital banking parameters viz. capital, leverage, funding
    and liquidity.
     Presently Indian banking system follows Basel II norms.
     The Reserve Bank of India has extended the timeline for full
    implementation of the Basel III capital regulations by a year to March
    31, 2019.

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