ALL ABOUT BASEL 3 TOTAL 25 QUESTION SEE THE ARTICLE

Basel regulation has evolved to comprise three pillars concerned with minimum capital requirements (Pillar 1), supervisory review (Pillar 2), and market discipline (Pillar 3). Today, the regulation applies to credit risk, market risk, operational risk and liquidity risk.

 

1>When did Basel 3 start?

Basel III is an international regulatory accord that introduced a set of reforms designed to mitigate risk within the international banking sector by requiring banks to maintain certain leverage ratios and keep certain levels of reserve capital on hand. Begun in 2009, it is still being implemented as of 2022.

 

2>What are Basel 1 2 3 norms?

The Basel Accords are a series of three sequential banking regulation agreements (Basel I, II, and III) set by the Basel Committee on Bank Supervision (BCBS). The Committee provides recommendations on banking and financial regulations, specifically, concerning capital risk, market risk, and operational risk.

 

3>Why is Basel necessary?

The goal of Basel III is to force banks to act more prudently by improving their ability to absorb shocks arising from financial and economic stress by requiring them to maintain a much larger capital base, increasing transparency and improving liquidity

 

4>What is RWA calculation?

Calculating risk-weighted assets

Banks calculate risk-weighted assets by multiplying the exposure amount by the relevant risk weight for the type of loan or asset. A bank repeats this calculation for all of its loans and assets, and adds them together to calculate total credit risk-weighted assets.

 

 

5>What are Pillar 3 requirements?

Pillar 3 requires firms to publicly disclose information relating to their risks, capital adequacy, and policies for managing risk with the aim of promoting market discipline.

 

6>What are the main features of the Basel III?

Key Principles of Basel III

The Basel III accord raised the minimum capital requirements for banks from 2% in Basel II to 4.5% of common equity, as a percentage of the bank's risk-weighted assets. There is also an additional 2.5% buffer capital requirement that brings the total minimum requirement to 7%

 

7>What is the difference between Basel 3 and 4?

Basel 4 refers to the finalisation of the Basel 3 reform package which had taken more than a decade to develop and was split into two pieces – the final amendments elements being agreed by the Basel Committee in December 2017.

 

8>What is the Basel III leverage ratio?

The Basel III leverage ratio is defined as the capital measure (the numerator) divided by the. exposure measure (the denominator), with this ratio expressed as a percentage: Leverage ratio = Capital measure. Exposure measure.

 

9>What is Pillar 1 and Pillar 2 capital?

While pillar 1 of the Basel regulatory capital framework deals only with the capital requirements for credit, market, and operational risk as well as regulatory liquidity ratios calculated according to more or less sophisticated regulatory approaches; pillar 2 focuses on the economic and internal perspective of banks

 

10>What is meant by Tier 1 capital?

Tier 1 capital refers to the core capital held in a bank's reserves and is used to fund business activities for the bank's clients. It includes common stock, as well as disclosed reserves and certain other assets.

 

11>Does Basel 3 apply to all banks?

Like all Basel Committee standards, Basel III standards are minimum requirements which apply to internationally active banks. Members are committed to implementing and applying standards in their jurisdictions within the time frame established by the Committee.

 

12>How does Basel III affect banks?

The Results. The paper provides evidence suggesting that Basel III causes risk to migrate from banks to the overall economy. Specifically, the findings show that borrowers increase their risk-taking after incurring higher borrowing costs resulting from these banking regulations.

 

13>What is the difference between Basel II and Basel III?

The key difference between the Basel II and Basel III are that in comparison to Basel II framework, the Basel III framework prescribes more of common equity, creation of capital buffer, introduction of Leverage Ratio, Introduction of Liquidity coverage Ratio(LCR) and Net Stable Funding Ratio (NSFR)

 

14>Is Basel III fully implemented?

The implementation date of the Basel III standards finalised in December 2017 has been deferred by one year to 1 January 2023. The accompanying transitional arrangements for the output floor have also been extended by one year to 1 January 2028.

 

15>What is CRR in Basel?

The overarching goal of the Basel III agreement and its implementing act in Europe, the Capital Requirements Regulation (CRR) and Directive (CRD), is to strengthen the resilience of the banking sector across the European Union (EU) so it would be better placed to absorb economic shocks while ensuring that banks .

 

16>Can Basel III prevent financial crisis?

Probably far from it. Banking crises are inevitable. So, while the Basel standards cannot prevent all future crises, they can seek to mitigate their likelihood and impact

17>Do we have Basel 4?

Basel IV is the informal name for a set of proposed banking reforms building on the international banking accords known as Basel I, Basel II, and Basel III. It is also referred to as Basel 3.1. It is scheduled to begin implementation on Jan. 1, 2023

 

18>Has Basel 4 been implemented?

Originally due to be implemented in January 2022, Basel 4 has been delayed until January 2023, but that does not mean that banks can sit on their laurels as there is still much work to be done to prepare for the new deadline

 

19>What is the minimum capital requirement under Basel III?

Under Basel III, the minimum capital adequacy ratio that banks must maintain is 8%.

 

20>What is a Tier 3 bank?

Tier 3 capital is capital banks hold to support market risk in their trading activities. Unsecured, subordinated debt makes up tier 3 capital and is of lower quality than tier 1 and tier 2 capital.

 

21>What are Pillar 2 risks?

The Pillar 2 supervisory review process is an integral part of the Basel Framework. It is intended to ensure that banks not only have adequate capital to support all the risks in their business but also develop and use better risk management techniques in monitoring and managing these risks.

 

22>What is PRA buffer?

The PRA buffer is an amount of capital that firms should maintain in addition to their total capital requirements to absorb losses that may arise under a severe stress scenario, while avoiding duplication with the combined buffers.

 

23>What is the difference between capital and liquidity?

Liquidity is a measure of the cash and other assets banks have available to quickly pay bills and meet short-term business and financial obligations. Capital is a measure of the resources banks have to absorb losses

 

24>Is Basel III in force?

Following a one-year deferral to increase the operational capacity of banks and supervisors to respond to COVID-19, these reforms will take effect from 1 January 2023 and will be phased in over five years. The FSB has designated Basel III as one of the priority areas for implementation monitoring.২

 

25>Is Basel III enough?

With Basel III, we have laid the foundation with a strong set of minimum standards. But they are exactly that – minimum standards. They are necessary, but not sufficient: Basel III cannot be relied upon to deliver stability on its own

 

26>What is CRR and SLR?

Cash Reserve Ratio (CRR) is the percentage of money, which a bank has to keep with RBI in the form of cash. Whereas, Statutory Liquidity Ratio (SLR) is the proportion of liquid assets to time and demand liabilities.