What is Basel II? Who is behind this? I put it? Is international law? Do we have to comply? Who has to comply? May I have a summary of the Basel II? These are very important questions, and it's good to start from their answers.
framework of Basel II (the official name is the "International Convergence of Capital Measurement money and criteria for capital: frame rate") is a new set of international standards and best practices that define the minimum requirements for capital internationally active banks. Banks have to maintain a minimum capital, to ensure that they can meet their obligations, they can cover unexpected losses, and can enhance the confidence of the public (which is of paramount importance to the international banking system).
banks want to invest their money, not keep them to face future risks. Regulatory capital (minimum capital requirement) is the duty of the money. A low level of capital poses a threat to the banking system itself: banks, depositors may lose their money, or they may not trust banks more than that may fail. This framework sets the minimum international standards.
will be the application of Basel II on a consolidated basis (the combination of the Bank's activities in the home and host countries).
has been the framework of the Basel Committee on Banking Supervision put (BCBS), which is a committee at the Bank for International Settlements (BIS), the oldest international financial organization in the world (established on May 17, 1930).
Basel Committee on Banking Supervision established by the G10 (Group of Ten countries) in 1974. These countries (10 became 11) is rich and developed: Belgium, Canada, France, Germany, Italy states , Japan, Netherlands, Sweden, Switzerland, United Kingdom and the United States.
The G10 behind the development of the previous frame (Basel I), and now they have endorsed a new set of Basel II securities (mainly paper and many illustrations securities). Should only banks in G10 countries for the implementation of the framework, but volunteered more than 100 countries to adopt these principles, or to take these principles into account, and use it as the basis for the process of the development of national rules.
Basel I was not sensitive risk. It was all loans granted to companies borrowed subject to the same capital requirements, without taking into account the ability of counterparties to repay. We ignore credit rating and credit history, risk management and corporate governance structure of all corporate borrowers. They were all the same: private companies.
Basel II is much more sensitive to risk, as is the reconciliation of the capital requirements for the risk of loss. Improve risk management in the bank means that the bank may be able to regulatory capital allocation less.
in the Basel II we have three pillars:
column 1 has to do with the expense of from the top of the minimum capital requirements. There are various methods:
standardized approach to credit risk: Banks dependent on external measures of credit risk (such as credit rating agencies) to assess the credit quality of the borrowers.
and internal assessments based (IRB) approaches of credit risk: Banks partly or wholly dependent on their own measures of credit risk on the opposite end, and specify a header of their own capital requirements using internal models.
banks have to allocate capital to cover operational risk (the risk of loss due to errors, fraud and failure of information technology systems and external events, litigation, etc.). This can be a difficult process.
and the basic indicator approach linking the capital charge that the total income of the bank. In the consolidated approach, the bank can be divided into seven business lines, and we have seven different capital allocation, and one in each business line. Advanced measurement approach based on internal models and years of experience of loss.
column 2 covers the supervisory review process. describes the principles of effective supervision.
supervisors and duty to assess the activities, corporate governance, risk management and features of banks' risks to determine if they have to change or to allocate more capital to risk (called pillar 2 capital).
column 3 covers transparency and commitment banks to disclose useful information to all stakeholders. Must be customers and shareholders sufficient understanding of the activities of banks, and the way it manages its risks.
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