basel 1 banking
TRANSCRIPT
8/7/2019 basel 1 banking
http://slidepdf.com/reader/full/basel-1-banking 1/10
A presentation on««..A presentation on««..
BASEL 1Prepared by:
Palak & Ripal
8/7/2019 basel 1 banking
http://slidepdf.com/reader/full/basel-1-banking 2/10
INTRODUCTION TO BASELINTRODUCTION TO BASEL
COMMITT
EECOMMITT
EEy A Group of eleven nations decided toform a co-operative council to harmonizebanking standards and regulations
internationally within the member states.y Goal:
Extend regulatory coverage.
Promote adequate banking supervision.Strict supervision.
� It can not enact legally binding standards.
8/7/2019 basel 1 banking
http://slidepdf.com/reader/full/basel-1-banking 3/10
DEFINITIONDEFINITION
y A set of international banking regulations
put forth by the Basel Committee on
Bank Supervision, which set out the
minimum capital requirements of financialinstitutions with the goal of minimizing
credit risk. Banks that operate
internationally are required to maintain aminimum amount (8%) of capital based on
a percent of risk-weighted assets
8/7/2019 basel 1 banking
http://slidepdf.com/reader/full/basel-1-banking 4/10
SCOPE O BASEL 1SCOPE O BASEL 1
y Created for G-10 which are developednations and not for emerging economies.
y It only provides information on adequate
capital to guard against risk of creditworthiness other areas such asfluctuation in nation's currency,macroeconomic downturn, interest rate
changes etc are not covered.y It only proposes minimum capital
requirement for internationally active banks.
8/7/2019 basel 1 banking
http://slidepdf.com/reader/full/basel-1-banking 5/10
FOUR PILLORS OF BASEL 1FOUR PILLORS OF BASEL 1
1) The constituents of capital
CONSTITUENT
Banker·s reserve
Tier 1 Tier 2
How muchreserve to be
hold
8/7/2019 basel 1 banking
http://slidepdf.com/reader/full/basel-1-banking 6/10
FOUR PILLORS OF BASEL 1FOUR PILLORS OF BASEL 1
2) Risk weighing
It divides bank·s assets into five categories
0% - riskless 20% - low risk
50% - moderate risk
100% - high risk variable depending on central bank·s
discretion
8/7/2019 basel 1 banking
http://slidepdf.com/reader/full/basel-1-banking 7/10
0% - cash, central bank and government debtand any OECD government debt
0%, 10%, 20% or 50% - public sector debt20% - development bank debt, OECD bank
debt, OECD securities firm debt, non-OECDbank debt (under one year maturity) and
non-OECD public sector debt, cash incollection
50% - residential mortgages
100% - private sector debt, non-OECD bank debt (maturity over a year), real estate, plantand equipment, capital instruments issued atother banks
8/7/2019 basel 1 banking
http://slidepdf.com/reader/full/basel-1-banking 8/10
FOUR PILLORS OF BASEL 1FOUR PILLORS OF BASEL 1
3) A target standard ratio
It combines pillar 1 and pillar 2.
I
t sets a universal standard whereby 8% of a bank·s risk-weighted assets must be
covered byTier 1 andTier 2 capital
reserves.
Tier 1 capital must cover 4% of a bank·srisk-weighted assets.
8/7/2019 basel 1 banking
http://slidepdf.com/reader/full/basel-1-banking 9/10
FOUR PILLORS OF BASEL 1FOUR PILLORS OF BASEL 1
4)Transitional and implementing
agreements
sets the stage for the implementation of
the Basel Accords.
Each country·s central bank is requested
to create strong surveillance and
enforcement mechanisms to ensure theBasel Accords are followed
8/7/2019 basel 1 banking
http://slidepdf.com/reader/full/basel-1-banking 10/10
CRITICISMS:CRITICISMS:
y Narrow scope.
y Weak influence
y Inability to publicize in lay-men·s terms.
y Oversell of the terms of BASEL 1
y Wide breath and absoluteness of BASEL
1·s risk weighing.
y Application to emerging economies