Basel

BASEL FRAMEWORK
Special issues in Indian
banking sector.
BASEL
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YOGESH NAMDEO INGLE. MBA (FINANCE),
NET (MANAGEMENT), Ph.D (WIP), G.D.C
&A, NCMP.

Bank for International Settlements
Type
International
organization
Purpose/focus
Central bank
cooperation
Location Basel, Switzerland
Membership 58 central banks
General manager Jaime Caruana
Main organ Board of directors
Website www.bis.org
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&A, NCMP.

BIS - BANK FOR INTERNATIONAL SETTLEMENTS
 Established on 17 May 1930.
 Two representative offices:
1. Hong Kong
2. Mexico City
 BIS fosters co-operation among central
banks and other agencies in pursuit of
monetary and financial stability.
BASEL
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YOGESH NAMDEO INGLE. MBA
(FINANCE), NET (MANAGEMENT),
Ph.D (WIP), G.D.C &A, NCMP.

 Every two months, the BIS hosts in Basel,
meetings of Governors and senior officials
of member central banks.
 Representatives from Argentina, Australia,
Belgium, Brazil, Canada, China, France,
Germany, Hong Kong SAR, India,
Indonesia, Italy, Japan, Korea,
Luxembourg, Mexico, the Netherlands,
Russia, Saudi Arabia, Singapore, South
Africa, Spain, Sweden, Switzerland,
Turkey, the United Kingdom and the
United States.
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 It publishes statistics on global banking,
securities, foreign exchange and derivatives
markets.
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BASEL ACCORDS
 The Basel Accord of 1988 (Basel I) focused
almost entirely on credit risk.
 Capital and a structure of risk weights for
banks.
 The G-10 countries agreed to apply the
common minimum capital standards to their
banking industries by end of 1992.
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 In June 2004, a revised international capital
framework was introduced through Basel II.
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BASEL II
Framework is based on three pillars.
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&A, NCMP.

1. Minimum Capital Requirements
2. Supervisory Review Process
3. Market Discipline
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THE FIRST PILLAR – MINIMUM CAPITAL
REQUIREMENTS
 Tier 1 Capital includes only permanent
shareholders’ equity and disclosed reserves .
 Share premium
 Retained earnings
 General reserves
 Legal reserves
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 Tier 2 Capital includes –
 undisclosed reserves, revaluation reserves,
general provisions and loan-loss reserves,
hybrid (debt / equity) capital instruments and
subordinated term debt.
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 Tier 3 Capital is represented by short-term
subordinated debt covering market risk.
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THE SECOND PILLAR – SUPERVISORY REVIEW
PROCESS
Principle 1
 Banks should have a process for assessing
their overall capital adequacy in relation to
their risk profile and a strategy for
maintaining their capital levels.
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Principle 2
 Supervisors should review and evaluate the
bank’s internal capital adequacy
assessments and strategies, as well as their
ability to monitor and ensure their
compliance with regulatory capital ratios.
 Appropriate corrective action is to be taken,
if required.
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Principle 3
 Supervisors should expect banks to operate
above the minimum regulatory capital ratios
and should have the ability to require banks
to hold capital in excess of the minimum.
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Principle 4
 Supervisors should seek to intervene at an
early stage to prevent capital from falling
below the minimum levels required to
support the risk characteristics of a particular
bank and should require rapid remedial
action if capital is not maintained or restored.
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THE THIRD PILLAR – MARKET DISCIPLINE
 This is meant to complement the other two
pillars.
 The bank’s disclosures need to be consistent
with how senior management and the Board
of Directors assess and manage the risks of
the bank.
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 On 12 September 2010 meeting, the Group
of Governors and Heads of Supervision, the
oversight body of the Basel Committee on
Banking Supervision, announced a
substantial strengthening of existing capital
requirements.
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BASEL III
 Set of reform measures to strengthen the
regulation, supervision and risk management
of the banking sector.
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 improve the banking sector's ability to
absorb shocks arising from financial and
economic stress, whatever the source
 Improve risk management and governance
 Strengthen banks' transparency and
disclosures.
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THE REFORMS TARGET:
 Bank-level, or micro-prudential regulation,
which will help raise the resilience of
individual banking institutions to periods of
stress.
 Macro-prudential, system wide risks that can
build up across the banking sector as well as
the pro-cyclical amplification of these risks
over time.
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HELP YOURSELF
 http://www.rbi.org.in/scripts/governors.aspx#
manmohan
 http://www.bis.org/
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&A, NCMP.

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