What does basel stands for (Basel Committee)?

what is the abbreviation/expansion of BASEL in BASEL Committee, which is related to Banking . Its named after the city of Basel in Switzerland, where the permanent secretariat of the Basel Committee on Banking Supervision is located. Basel is also where the Committee holds its meetings.

Basel Committee on Banking Supervision is an institution created by the central bank Governors of the Group of Ten nations. It was created in 1974 and meets regularly four times a year. The Basel

Committee on Banking Supervision is a committee of banking supervisory authorizations, which was established by the central bank governors of the group of ten countries in 1975.

Basel I is the round of deliberations by central bankers from around the world, and in 1988, the Basel Committee (BCBS) in Basel, Switzerland, published a set of minimum capital requirements for banks. This is also known as the 1988 Basel Accord, and was enforced by law in the Group of Ten (G-10) countries in 1992 . Basel I is now widely viewed as outmoded. Indeed, the world has changed as financial conglomerates, finanicial innovation and risk management have developed. Therefore, a more comprehensive set of guidelines, known as Basel II are in the process of implementation by several countries and new updates in response to the financial crisis commonly described as Basel III

Main framework
Basel I, that is, the 1988 Basel Accord, primarily focused on credit risk. Assets of banks were classified and grouped in five categories according to credit risk, carrying risk weights of zero (for example home country sovereign debt), ten, twenty, fifty, and up to one hundred percent (this category has, as an example, most corporate debt). Banks with international presence are required to hold capital equal to 8 % of the riskweighted assets. The creation of the credit default swap after the Exxon Valdez incident helped large banks hedge lending risk and allowed banks to lower their own risk to lessen the burden of these onerous restrictions. Since 1988, this framework has been progressively introduced in member countries of G-10, currently comprising 13 countries, namely, Belgium, Canada, France, Germany, Italy, Japan,Luxembourg, Netherlands, Spain, Sweden, Switzerla nd, United Kingdom and the United States of America. Most other countries, currently numbering over 100, have also adopted, at least in name, the principles prescribed under Basel I. The efficiency with which they are enforced varies, even within nations of the Group.

Basel II is the second of the Basel Accords, (now extended and effectively superseded by Basel III),
which are recommendations on banking laws and regulations issued by the Basel Committee on Banking Supervision.

Basel II, initially published in June 2004, was intended to create an international standard for banking regulators to control how much capital banks need to put aside to guard against the types of financial and operational risks banks (and the whole economy) face. One focus was to maintain sufficient consistency of regulations so that this does not become a source of competitive inequality amongst internationally active banks. Advocates of Basel II believed that such an international standard could help protect the international financial system from the types of problems that might arise should a major bank or a series of banks collapse. In theory, Basel II attempted to accomplish this by setting up risk and capital management requirements designed to ensure that a bank has adequate capital for the risk the bank exposes itself to through its lending and investment practices. Generally speaking, these rules mean that the greater risk to which the bank is exposed, the greater the amount of capital the bank needs to hold to safeguard its solvency and overall economic stability. Politically, it was difficult to implement Basel II in the regulatory environment prior to 2008, and progress was generally slow until that year's major banking crisis caused mostly by credit default swaps, mortgagebacked security markets and similar derivatives. As Basel III was negotiated, this was top of mind, and accordingly much more stringent standards were contemplated, and quickly adopted in some key countries including the USA

Basel III is a global regulatory standard on bank capital adequacy, stress testing and market
liquidity risk agreed upon by the members of the Basel Committee on Banking Supervision in 2010-11.[1] The third installment of the Basel Accords (see Basel I, Basel II) was developed in response to the deficiencies in financial regulation revealed by the late-2000s financial crisis. Basel III strengthens bank capital requirements and introduces new regulatory requirements on bank liquidity and bank leverage. For instance, the change in the calculation of loan risk in Basel II which some consider a causal factor in the credit bubble prior to the 2007-8 collapse: in Basel II one of the principal factors of financial risk management was outsourced to companies that were not subject to supervision, credit rating agencies. Ratings of creditworthiness and of bonds, financial bundles and various other financial instruments were conducted without supervision by official agencies, leading to AAA ratings on mortgage-backed securities, credit default swaps, and other instruments that proved in practice to be extremely bad credit risks. In Basel III, a more formalscenario analysis is applied (three official scenarios from regulators, with ratings agencies and firms urged to apply more extreme ones).

Macroeconomic Impact of Basel III

An OECD study[2] released on 17 February 2011, estimates that the medium-term impact of Basel III implementation on GDP growth is in the range of 0.05% to 0.15% per year. Economic output is mainly affected by an increase in bank lending spreads as banks pass a rise in bank funding costs, due to higher capital requirements, to their customers. To meet the capital requirements effective in 2015 (4.5% for the common equity ratio, 6% for the Tier 1 capital ratio), banks are estimated to increase their lending spreads on

average by about 15 basis points. The capital requirements effective as of 2019 (7% for the common equity ratio, 8.5% for the Tier 1 capital ratio) could increase bank lending spreads by about 50 basis points.

Capital Requirements
Date Milestone: Capital Requirement

2013 Minimum capital requirements: Start of the gradual phasing-in of the higher minimum capital requirements.

2015 Minimum capital requirements: Higher minimum capital requirements are fully implemented.

2016 Conservation buffer: Start of the gradual phasing-in of the conservation buffer.

2019 Conservation buffer: The conservation buffer is fully implemented.

[edit]Leverage Date

Ratio
Milestone: Leverage Ratio

2011 Supervisory monitoring: Developing templates to track the leverage ratio and the underlying components.

2013

Parallel run I: The leverage ratio and its components will be tracked by supervisors but not disclosed and not mandatory.

2015 Parallel run II: The leverage ratio and its components will be tracked and disclosed but not mandatory.

2017 Final adjustments: Based on the results of the parallel run period, any final adjustments to the leverage ratio.

2018 Mandatory requirement: The leverage ratio will become a mandatory part of Basel III requirements.

[edit]Liquidity Date

Requirements
Milestone: Liquidity Requirements

2011 Observation period: Developing templates and supervisory monitoring of the liquidity ratios.

2015 Introduction of the LCR: Introduction of the Liquidity Coverage Ratio (LCR).

2018 Introduction of the NSFR: Introduction of the Net Stable Funding Ratio (NSFR).

Ability of firm to pay back its short term obligations.

What is the differences between basel 1 and 2 and 3?

Basel I dealt with Capital Requirements for Banks. Basel II deal with Capital Requirements for Banks, Supervisor Review and Regulations, Market Displine. Basel III is same as Basel II with the enhancement of having Capital Buffer upto 4.5% which is not a part of Basel II. The main difference is that the Basel I accord mainly focused on capital requirements for banks. The Basel II adds supervision and market discipline to these capital requirement through the "Three...

What is the difference between basel 2 and basel 3?

in basel II there is no capital buffer but in basel III buffer is 4.5 % to be achieved upto jan 16 to absorb shocks.

In 1988 the Basel committee on banking supervision 1 introduced the Basel 1 accord or the risk-based capital requirements to deal with the weaknesses in the leverage ratio as a measure for solvency. The 1988 Accord requires internationally active banks in

Basel 1accord. Because of a flat 8% charge for claims on the private sector, banks have an incentive to move high quality assets off the balance sheet (capital arbitrage) through securitization

(Basel 2) as outlined by Basel committee- are:

 Promote safety and soundness in the financial system; Enhance competitive equality; Constitute a more comprehensive approach to addressing risks; Develop approaches to capital adequacy that are appropriately sensitive to the degree of risk involved in a banks positions and activities; and Focus on internationally active banks, and at the same time keep the underlying principles suitable for application to banks of varying levels of complexity and sophistication. To achieve these objectives the new accord measure the risk-based capital ratio according to the following relation: Capital Risk Based Capital Ratio Credit Risk Market Risk Operational Risk =++ (3)

Difference

Under Basel 1individual risk weights depend on the board category of borrower (i.e. sovereigns, banks or corporates). Under Basel 2the risk weights are to be refined by reference to a rating provided by an external credit assessment institution (such as a rating agency) that meets strict standards. For example, for corporate lending, the existing Accord provides only one risk weigh category of 100% but the new Accord will provide four categories (20%, 50%, 100% and 150%) the relation between the risk weights and credit assessment for corporate lending.

pilar 1:capital requirement Although Basel I already includes some limited risk sensitivity,
one of the main con-tributions of Basel II is to make the capital requirements rule more risk sensitive. In

order to simplify the presentation, we focus on the main differences between the two accords and consider astylized version of Basel I characterized by a risk insensitive capital rule(=0), a constant audit frequency , andbyabsenceofmarketdisci-pline (assuming that deposits are fully insured). Moreover, we assume that the asset weight is100%, which holds if all the claims in the banks portfolio correspond, for example, to corporate lending.

Pillar 1: Minimum capital requirements

All of us have strongly wished for greater risk sensitivity.Thelackof differentiation of risk in the original Capital Accord was heavily criticized by banks and observers.

3 Market discipline
The purpose of pillar three - market discipline - is to complement the min-imum capital requirements (Pillar 1) and the supervisory review process (Pillar 2). The Committee aims toencourage market disciplineby devel-oping a set of disclosure requirements which willallow market participants to assess key pieces of information on the scope of application, capital, risk exposures, risk assessment processes, and hencethe capital adequacy of the institution. Conclusions The soundness of the banking system is one of the most important issues for the regulatory authorities and for the financial system stability. The new accord Basel 2 introduce a new approaches to capital adequacy that are appropriately sensitive to the degree of risk involved in a banks positions and activities and better measure the insolvency probability. Basel 2 introduce also two new pillars; the review process and market discipline. The two new pillars are introduced to assess the availability of the minimum

requirements to implement the new approaches suggested in the accord and to help market participants to better understand banks risk profiles and the adequacy of their capital positions. Banks should start the preparation process for the implementation of the new accord by reviewing the requirements it satisfy, the requirements need to attain based on the chosen approaches.

What is the difference between basel-I and Basel-II norms and how is that Basel-II norms better than the I?

6 years ago Report Abuse

cvrk3
Best Answer - Chosen by Voters

Basel I norms envisages capital adequacy for market exposure. Basel II expects capital adequacy for credit, asset and operational risk. While 2007 may mark the beginning of implementation of Basel norms in India, our RBI Governor himself cautions that adopting Basel II norms is very complex. Read his speech here: http://www.rbi.org.in/scripts/BS_ViewBul

6 years ago Report Abuse

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Ron Mexico I assume you work at a bank. You can read the basel documentation and get a good feel. basically basel II is in more depth than basel I. o o
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What are BASEL - I and BASEL - II norms?

What are BASEL - I and BASEL-II norms?
4 years ago Report Abuse

drop of snow

Best Answer - Chosen by Voters

Basel II is the second of the Basel Accords, which are recommendations on banking laws and regulations issued by the Basel Committee on Banking Supervision. The purpose of Basel II, which was initially published in June 2004, is to create an international standard that banking regulators can use when creating regulations about how much capital banks need to put aside to guard against the types of financial and operational risks banks face. Advocates of Basel II believe that such an international standard can help protect the international financial system from the types of problems that might arise should a major bank or a series of banks collapse. In practice, Basel II attempts to accomplish this by setting up rigorous risk and capital management requirements designed to ensure that a bank holds capital reserves appropriate to the risk the bank exposes itself to through its lending and investment practices. Generally speaking, these rules mean that the greater risk to which the bank is exposed, the greater the amount of capital the bank needs to hold to safeguard its solvency and overall economic stability.

Leverage ratio
2. A ratio used to measure a company's mix of operating costs, giving an idea of how changes in output will affect operating income. Fixed and variable costs are the two types of operating costs; depending on the company and the industry, the mix will differ. Read more: http://www.investopedia.com/terms/l/leverageratio.asp#ixzz25lS3STd5