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Baselnorms 130308143421 Phpapp01 PDF
Baselnorms 130308143421 Phpapp01 PDF
What is CAR?
Capital adequacy provides regulators with a means of
establishing whether banks and other financial
institutions have sufficient capital to keep them out of
difficulty. Regulators use a Capital Adequacy Ratio
(CAR), a ratio of a bank’s capital to its assets, to assess
risk.
CAR = (Bank’s Capital)/(Risk Weighted Assets)
= (Tier I Capital + Tier II Capital)/(Risk Weighted
Assets)
Concepts of Capital Adequacy
Norms
Tier I Capital
Tier II Capital
Subordinated Debts
Risks Involved
Credit Risk
Market Risk
a) Interest Rate Risk
b) Foreign Exchange Risk
c) Commodity Price Risk etc.
Operational Risk
Basel – I Norms
In 1988, the Basel I Capital Accord was created. The
general purpose was to:
Wider Market
Products
Customers
Advantages of Basel II over I
The discrepancy between economic capital and
regulatory capital is reduced significantly, due to that
the regulatory requirements will rely on banks’ own
risk methods.
On Financial Stability
On Investors
References
Bank For International Settlements, “Basel Committee
on Banking Supervisions”,
http://www.bis.org/bcbs/index.htm
Investopedia,
http://www.investopedia.com/articles/economics/10/
understanding-basel-3-
regulations.asp#axzz26w2DIKab
Bank Credit Management by G.Vijayaraghavan,
Chapter – 14, pp- 170 - 171
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