Professional Documents
Culture Documents
Group 2:
Ahsan Khawar
Fahd Iqtidar
Hafiz Shoaib
Hashim Rashid
Waqas Ahmad
Major Improvements:
Tighter definitions of Common Equity; banks must hold
4.5% by January 2015, then a further 2.5%, totaling 7%.
Assets like cash and coins usually have zero risk weight,
while debentures might have a risk weight of 100%.
Tier 1: Explaining the Capital Ratio
A 10% Tier 1 capital ratio may approximate but
does not mean that a bank is holding in its vaults $1
for every $10 that a customer has in their account
balance.
Tier 1: Calculation of Capital Ratio
Suppose, Bank has an equity of 2$ and deposits of 10$.
BASEL III:
Tier 1 Capital Ratio = 6%
Core Tier 1 Capital Ratio (Common Equity after deductions) =
4.5%
The accord requires banks to increase their capital ratios when they
face greater risks. Unfortunately, this may require them to lend less
during a recession or a credit crunch, which could aggravate the
downturn
Enter: Counter Cyclicality & Basel III
An economic or financial policy is called 'countercyclical‘ if it
works against the cyclical tendencies in the economy.
BASEL III:
A countercyclical buffer within a range of 0% – 2.5% of common
equity or other fully loss absorbing capital will be implemented
according to national circumstances.
Banks that have a capital ratio that is less than 2.5%, will face
restrictions on payouts of dividends, share buybacks and bonuses.
Leverage Ratio:
Basel III introduces a new form of regulation, The
leverage ratio. Its objectives are to:
2. Reduction in credit
Decreased availability and increased borrowing cost
Fewer borrowers have access to funding
Significantly more onerous conditions
Higher unemployment
Case:
Sub prime Mortgages and SPVs
2 Frontier: Among Financial Markets
nd
Case:
Banks indulging in securities offering business by
registering with Federal Bank bypassing SEC,
getting benefit of ease and speed.
3 Frontier: Among Jurisdictions
rd
Product Regulation:
A collective savings scheme should have same disclosure
requirements whether offered by bank or insurance company.
Securities regulator regulates the sales practices of all
collective investment schemes irrespective of which firm offers
them.
Objectives Of Unified Regulation
Supervision of financial conglomerates.
Regulatory efficiency.
Regulatory flexibility.
Developing a body of professional staff.
Eliminating arbitrage opportunities.
Structure of Regulation
Prudential regulation must be based on institutions.
Arbitrage opportunities are reduced by proper
consolidated supervision.