Basel Accord

By
NAME
SHAFIQUL ISLAM AEYSHA AFRIN SHIPA SHAMSUN NAHAR SHAHRUKHUR RAHMAN KHAN RASEL SINHA MOUSUMI AKTER

ID
111019701 111019131 111019121 111019661 111020071 111020061

BATCH
19TH 19TH 19TH 19TH 20TH 20TH

Introduction to International Banking Law

The international banking law governing the banking system that has certain legislative and regulatory provisions. The international banking law consists of different parts each addressing a different banking service. Part 1 : Basic facilities including the definitions of the term the deposit taking business Part 2 : Control of deposit taking businesses. Part 3 : Administration. Part 4 : Licenses Part 5 : Responsibilities of licenses. Part 6 : Opposition to controllers. Part 7 : Supervision of deposit taking businesses. Part 8 : Cancellation of the licenses. Part 9 : Prohibitions and notifications. Part 10 : Appeals. Part 11 : Miscellaneous provisions or facilities. Part 12 : Transitional provisions. deposit and

Basel Committee
The 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 Committee's members come from

Argentina, Australia, Belgium, Brazil, Canada, China, France, SAR, India, Indonesia, Italy, Japan, Korea, Luxembourg, Mexico, the Netherlands, Russia, Saudi Arabia, Singapore, South Africa, Spain, Sweden, Switzerland, Turkey, the United Kingdom and the United States, Germany, Hong Kong. The Committee usually meets at the Bank for International Settlements (BIS) in Basel, Switzerland, where its 12 member permanent Secretariat is located. However, the BIS and the Basel Committee remain two distinct entities.

Basel Accord
An agreement on international banking regulations dealing with how banks handle risk. Risk Weight Asset Class
0% Cash and gold held in the bank. Obligation on OECD governments and U.S treasuries Claims on OECD banks. Securities issued by U.S government agencies. Claims on municipalities. Residential mortgages. All other claims such as corporate bonds, less-developed countrys debt, claims on non-OECD banks, equities, real estate, plant and equipment.

Focuses mainly on credit risk.

20% 50% 100%

It divides banks assets into five categories according to how risky they are. The five categories are assets with no risk 0%, 20%, 50% and 100%. All banks conducting international transactions are required under the Basel Accord to hold assets with no more than 8% aggregated risk.

Banks in most G-10 countries have implemented it since the early 1990s.
Now considered largely outdated and its in the process of being replaced by Basel III. It is also called Basel I & Basel II

Basel I
In 1988, the Basel I Capital Accord was created. The general purpose was to Strengthen the stability of international banking system. Set up fair and a consistent international banking system in order to decrease competitive inequality among international banks. In order to set up a minimum risk-based capital adequacy applying to all banks and governments in the world A general definition of capital was required. Indeed, before this international agreement, there was no single definition of bank capital. The first step of the agreement was thus to define it.

Drawbacks of Basel I
Limited differentiation of credit risk Static measure of default risk No recognition of term-structure of credit risk Simplified calculation of potential future counterparty risk Lack of recognition of portfolio diversification effects

Basel II
The first Basel Accord has been replaced by a new accord, Basel II

PURPOSE OF BASEL II
Which was initially published in June 2004.

Basel II is a voluntary agreement between the banking authorities of the major developed countries To create an international standard that banking regulators can use Creating regulations about how much capital banks need to put aside to guard against the types of financial and operational risks banks faces. The intention is that Basel II will align required minimum capital more closely with lenders real risk profile.

Drawbacks of Basel II
Banks allowed to overstate their true amount of capital Banks allowed to understate the risks to which they were exposed Basel II failed to prevent the global financial crisis that began in 2007

Basel III
Negotiations are now underway for a new set of standards, to be known as Basel III PROPOSED IMPROVEMENTS INCLUDE: A better measurement of capital, closer to tangible common equity Better measurement of off-balance-sheet risks and risks of complex derivatives like credit default swaps Requirements for banks to build extra capital reserves if early warning signs show abnormal credit growth or asset price bubbles Provide incentives to strengthen the risk management of counterparty credit exposures Requirement to use long term data horizons to estimate probabilities of default

Will Basel III Succeed?

Negotiations on Basel III are to be concluded by the end of 2010

Preliminary proposals were tough, but banks are lobbying hard to weaken them
Already, at a preliminary meeting on July 26, 2010, negotiators took decisions to weaken several key proposals.