Basel Committee findings on Banking Supervision 12/07/2019 – Posted in: Daily News
BASEL COMMITTEE ON BANKING SUPERVISION
For: Mains
Topics covered: Findings of the committee, Basel Norms – I, II, III
News Flash
The Basel committee on banking supervision said the Reserve Bank of India’s norms on large exposures for banks are compliant with the Basel requirements.
- Also, RBI’s rules are stricter in some areas as well.
- The committee comprising of 45 members from central banks and bank supervisors from 28 jurisdictions.
- Basel Committee on Banking Supervision is the primary global standard setter for the prudential regulation of banks.
- The assessment was conducted by the Regulatory Consistency Assessment Programme (RCAP), part of the Basel committee.
- The committee’s assessment is focused on the completeness and consistency of the domestic regulations in force on 7 June 2019.
- Issues related to prudential outcomes, the resilience of the banking system or the supervisory effectiveness of the Indian authorities were not in the scope of this assessment.
Findings
- The Basel large exposures framework requires banks to identify third parties that may constitute an additional risk factor inherent in the structure itself rather than in underlying assets.
- RBI’s implementation of the large exposures framework requires banks to identify such third parties (like originator, fund manager, liquidity provider, and credit protection provider).
- In cases where there are multiple third parties considered to be potential drivers of additional risk, the bank must assign the exposures resulting from the investment in the structures to each of the third parties.
- The committee also found that Basel’s large exposures framework limits the sum of all exposures of a bank to a single counterparty to 25% of Tier 1 capital.
- Indian regulations establish the large exposure limit at 20%. In exceptional cases, banks’ boards may allow an additional 5% exposure to the bank’s available eligible capital base.
Bank for International Settlements
- The Bank for International Settlements (BIS) is an international financial institution owned by central banks.
- BIS fosters international monetary and financial cooperation and serves as a bank for central banks.
- The BIS carries out its work through its meetings, programmes and through the Basel Process.
- The BIS was established in 1930 by an intergovernmental agreement between Germany, Belgium, France, the United Kingdom, Italy, Japan, the United States, and Switzerland.
- It opened its doors in Basel, Switzerland, on 17 May 1930.
Basel Accords
The Basel Accords refer to the banking supervision Accords— Basel I, Basel II and Basel III—issued by the Basel Committee on Banking Supervision (BCBS).
- Basel I published a set of minimum capital requirements for banks and was enforced by law in the Group of Ten (G-10) countries in 1992.
- The Basel II Accord was published initially in June 2004 and was intended to amend international banking standards that controlled how much capital banks were required to hold to guard against the financial and operational risks banks face.
- Basel III is a global, voluntary regulatory framework on bank capital adequacy, stress testing, and market liquidity risk. Basel III was developed in response to the deficiencies in financial regulation revealed by the financial crisis of 2007–08. It is intended to strengthen bank capital requirements by increasing bank liquidity and decreasing bank leverage. These were scheduled to be introduced from 2013 until 2015, implementation was extended repeatedly to 31 March 2019 and then again until 1 January 2022.
Source: Livemint
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