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The Bankers Guide to Basel II

The Bankers Guide to Basel II

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Published by dominic.soon8900
Bankers' Guide to Basel II
Bankers' Guide to Basel II

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Categories:Business/Law, Finance
Published by: dominic.soon8900 on Feb 28, 2009
Copyright:Attribution Non-commercial

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11/15/2012

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THE BANKER’S GUIDE TO THE BASEL IIFRAMEWORK
December 2005
 
ii
 FOREWORDThe Basel II document, formally The International Convergence of CapitalMeasurement and Capital Standards, published by the Basel Committee onBanking Supervision of the Bank for International Settlements (2004), had farreaching implications for banking in South Africa. The aim of this paper is toprovide an introductory guide to this highly technical document and the vastamount of accompanying popular and scientific literature available on the weband in the press. This paper aims to provide a basic insight into the Basel IIdocument for persons, e.g. new financial market analysts and financial journalistneeding a basic understanding or introduction to the current bank supervisionand regulation.The paper was compiled from the original documents and reference to theparagraph numbers of the original documents is made in each section. Thereader can therefore easily find the specific section in the original documents andread the detailed explanation not covered in this paper.This paper is compiled from the Basel II documents by Prof. Paul Styger and Dr.Pieter G. Vosloo of the Centre for Business Mathematics and Informatics at theNorth-West University.The Banking Association is the trade association for the banking industry inSouth Africa and can be located at www.banking.org.za
 
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TABLE OF CONTENTS
Page
FOREWORD iiTABLE OF CONTENTS iiiLIST OF FIGURES viLIST OF TABLES viLIST OF ABBREVIATIONS viiCHAPTERS1. PART ONE: SCOPE OF APPLICATION 1
1.1 Introduction 11.2 Application Scope 31.2.1 Banking, securities and other financial subsidiaries 41.2.2 Significant minority investments in banking, securities and other financial entities41.2.3 Insurance entities 51.2.4 Significant investments in commercial entities 5
2. PART TWO: MINIMUM CAPITAL REQUIREMENTS 6
2.1 Calculation of minimum capital requirements 62.1.1 Definition 62.1.2 Regulatory capital 62.1.2.1 Capital elements 62.1.2.2 Definition of capital elements 72.1.2.2.1 Tier 1 72.1.2.2.2 Tier 2 72.1.2.2.3 Tier 3 82.1.3 Risk weighted assets 82.2 Credit risk 92.2.1 Introduction 92.2.2 Risk profile 92.2.3 Risk management and measurement 92.2.3.1 The standardised approach 102.2.3.1.1 Corporate, Bank and Sovereign exposures 102.2.3.1.2 Retail exposures 112.2.3.1.3 Higher risk categories 112.2.3.1.4 Other assets 112.2.3.1.5 Off-balance sheet items 112.2.3.1.6 External credit assessments 122.2.3.1.7 Credit risk mitigation 122.2.3.2 Internal ratings-based approach 132.2.3.2.1 Introduction 13

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