2. An Overview Of
the BASEL iii
Presented by:
Rana Faisal Ali
Wajahat Hussain
Muneeb Rana
Azhar Sadiq

3. Introduction:
• Basel is a city in Switzerland which is also
the headquarters of Bureau of International
Settlement (BIS).
• BIS’s common goal:
 financial stability
 common standards
• BIS have 27 member nations in the
committee.

4. Basel – I Norms
In 1988, the Basel I Capital Accord was created. The
general purpose was to:
1. Strengthen the stability of international banking
system.
2. Set up a fair and a consistent international banking
system in order to decrease competitive inequality
among international banks.

5. Limitations of Basel – I Norms
• Limited differentiation of credit risk
• Static measure of default risk
• No recognition of term-structure of credit risk
• Simplified calculation of potential future counter party
risk
• Lack of recognition of portfolio diversification effects

6. Basel – II Norms
Basel – II norms are based on 3 pillars:
• Minimum Capital – Banks must hold capital against
8% of their assets, after adjusting their assets for risk
• Supervisory Review – It is the process whereby
national regulators ensure their home country banks
are following the rules.
• Market Discipline – It is based on enhanced disclosure
of risk

7. Pitfalls of Basel – II norms
• Too much regulatory compliance
• Over Focusing on Credit Risk
• The new Accord is complex and therefore demanding
for supervisors, and unsophisticated banks
• Strong risk differentiation in the new Accord can
adversely affect the borrowing position of risky
borrowers

8. Advantages of Basel II over I
• The discrepancy between economic capital and
regulatory capital is reduced significantly, due to that
the regulatory requirements will rely on banks’ own
risk methods.
• More Risk sensitive
• Wider recognition of credit risk mitigation.

9. Basel – III Norms
Basel – III norms aim to:
• Improving the banking sector's ability to absorb
shocks arising from financial and economic stress
• Improve risk management and governance
• Strengthen banks' transparency and disclosures

10. Structure of Basel – III Accord
• Minimum Regulatory Capital Requirements based on
Risk Weighted Assets (RWAs) : Maintaining capital
calculated through credit, market and operational risk
areas.
• Supervisory Review Process : Regulating tools and
frameworks for dealing with peripheral risks that banks
face
• Market Discipline : Increasing the disclosures that
banks must provide to increase the transparency of
banks

11. Major changes in Basel - III
• Better Capital Quality
• Capital Conservation Buffer
• Counter cyclical Buffer
• Minimum Common Equity and Tier I Capital
requirements
• Leverage Ratios
• Liquidity Ratios
• Systematically Important Financial Institutions

12. BASEL III ACCORD
• The G20 endorsed the new ‘Basel 3’ capital and liquidity
requirements.
• Extension of Basel II with critical additions, such as a leverage
ratio, a macro prudential overview and the liquidity framework.
• Basel III accord provides a substantial strengthening of capital
requirements.
• Basel III will place greater emphasis on loss-absorbency capacity on a
going concern basis
• The proposed changes are to be phased from 2013 to 2015

13. Basel III-Objectives
• Special emphasis on the Capital Adequacy Ratio
– Capital Adequacy Ratio is calculated as –
CAR = (Tier 1 Capital + Tier 2 Capital) / Risk Weighted
Assets
– Reducing risk spillover to the real economy
• Comprehensive set of reform measures to strengthen the
banking sector.
• Strengthens banks transparency and disclosures.
• Improve the banking sectors ability to absorb shocks arising
from financial and economic stress.

14. Major features of Basel III
• Revised Minimum Equity & Tier 1 Capital
Requirements
• Better Capital Quality
• Backstop Leverage Ratio
• Short term and long term liquidity funding
• Inclusion of Leverage Ratio & Liquidity Ratios
• Rigorous credit risk management
• Counter Cyclical Buffer
• Capital conservation Buffer

15. Impact on Pakistani banking system
• Profitability
• Capital acquisition
• Liquidity Needs
• Limits on lending
• Bank consolidation
• Pressure on Yield on Assets
• Pressure on Return on Equity:
• Stability in the Banking system

16. Conclusion
• One shoe doesn’t fit all.
• Monetary policies of Central Banks in each country
(example RBI’s CRR, SLR, Repo etc.) make it difficult
to uniformly implement BASEL norms
• Exercising controls on the capital, liquidity and
leveraging of banks will ensure that they have the
ability to withstand crises.