Free Online Courses With Certificates - Basel Ii summary - What is important to Know About the Basel Ii Framework
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Free Online Courses With Certificates! Again, for I know. Ready to share new things that are useful. You and your friends.What is Basel Ii? Who is behind it? Who has developed it? Is it an international law? Do we have to comply? Who has to comply? May I have a Basel Ii Summary? These are very prominent questions, and it is good to start from their answers.
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We had a good read. For the benefit of yourself. Be sure to read to the end. I want you to get good knowledge from Free Online Courses With Certificates.The Basel Ii Framework (the lawful name is "International Convergence of Capital estimation and Capital Standards: a Revised Framework") is a new set of international standards and best practices that define the minimum capital requirements for internationally active banks. Banks have to maintain a minimum level of capital, to ensure that they can meet their obligations, they can cover unexpected losses, and can promote communal confidence (which is of celebrated significance for the international banking system).
Banks like to spend their money, not keep them for future risks. Regulatory capital (the minimum capital required) is an obligation. A low level of capital is a threat for the banking theory itself: Banks may fail, depositors may lose their money, or they may not trust banks any more. This framework establishes an international minimum standard.
Basel Ii will be applied on a consolidated basis (combining the bank's activities in the home country and in the host countries).
The framework has been developed by the Basel Committee on Banking administration (Bcbs), which is a committee in the Bank for International Settlements (Bis), the world's oldest international financial society (established on 17 May 1930).
The Basel Committee on Banking administration was established by the G10 (Group of Ten countries) in 1974. These 10 countries (have become 11) are the rich and developed countries: Belgium, Canada, France, Germany, Italy, Japan, the Netherlands, Sweden, Switzerland, the United Kingdom and the United States.
The G10 were behind the development of the old (Basel i) framework, and now they have endorsed the new Basel Ii set of papers (the main paper and the many explanatory papers). Only banks in the G10 countries have to implement the framework, but more than 100 countries have volunteered to adopt these principles, or to take these theory into account, and use them as the basis for their national rulemaking process.
Basel i was not risk sensitive. All loans given to corporate borrowers were field to the same capital requirement, without taking into inventory the potential of the counterparties to repay. We ignored the prestige rating, the prestige history, the risk administration and the corporate governance buildings of all corporate borrowers. They were all the same: hidden corporations.
Basel Ii is much more risk sensitive, as it is aligning capital requirements to the risks of loss. Best risk administration in a bank means that the bank may be able to allocate less regulatory capital.
In Basel Ii we have three Pillars:
Pillar 1 has to do with the calculation of the minimum capital requirements. There are separate approaches:
The standardized arrival to prestige risk: Banks rely on external measures of prestige risk (like the prestige rating agencies) to correlate the prestige potential of their borrowers.
The Internal Ratings-Based (Irb) approaches too prestige risk: Banks rely partly or fully on their own measures of a counterparty's prestige risk, and conclude their capital requirements using internal models.
Banks have to allocate capital to cover the Operational Risk (risk of loss because of errors, fraud, disruption of It systems, external events, litigation etc.). This can be a difficult exercise.
The Basic Indicator arrival links the capital charge to the gross revenue of the bank. In the Standardized Approach, we split the bank into 7 business lines, and we have 7 separate capital allocations, one per business line. The developed estimation Approaches are based on internal models and years of loss experience.
Pillar 2 covers the Supervisory recap Process. It describes the theory for productive supervision.
Supervisors have the compulsion to value the activities, corporate governance, risk administration and risk profiles of banks to conclude either they have to convert or to allocate more capital for their risks (called Pillar 2 capital).
Pillar 3 covers transparency and the compulsion of banks to disclose meaningful information to all stakeholders. Clients and shareholders should have a sufficient insight of the activities of banks, and the way they manage their risks.
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