Supervisory Review Process under Basel III: Emphasizing Pillar 3 and Market Discipline
The Basel III framework, developed by the Basel Committee on Banking Supervision, is a comprehensive set of international banking regulations designed to strengthen regulation, supervision, and risk management within the banking sector. It is structured around three key components, or “pillars”: Focus on Pillar 3: Promoting Market Discipline through Transparency Pillar 3 aims to bolster…
Read article Supervisory Review Process under Basel III (Pillar 2)
The Supervisory Review Process (SRP) is a key component of Pillar 2 of the Basel III framework. It reinforces the principle that banks must not only meet minimum regulatory capital requirements but also maintain capital commensurate with their entire risk profile—including risks not fully captured under Pillar 1. SRP promotes bank-specific oversight, fosters sound risk…
Read article Basel III: Capital Charge for Credit and Market Risk & Credit Risk Mitigation
The Basel III Accord strengthens the regulatory framework for banks by enhancing capital requirements and addressing key risk categories, including credit risk, market risk, and operational risk. It also outlines mechanisms for credit risk mitigation (CRM) and introduces buffers to ensure resilience in times of financial stress. 1. Capital Requirements under Basel III Basel III…
Read article Capital Charge for Operational Risk – Pillar 2 of Basel Accord
Under Pillar 2 of the Basel II Accord, banks are required to hold additional capital to cover operational risks that may not be adequately captured under Pillar 1. This additional requirement, known as the Pillar 2 capital add-on, is determined through the supervisory review process (SRP), which evaluates a bank’s internal assessment of capital adequacy…
Read article Basel II Accord – Need and Goals
The Basel II Accord was developed as an enhancement to the original Basel I framework, with the objective of creating a more comprehensive, risk-sensitive, and globally consistent regulatory standard for banks. It addressed critical gaps in Basel I by incorporating additional risk categories, refining capital adequacy norms, and emphasizing supervisory oversight and market discipline. Need…
Key difference between Basel II & Basel III framework
Basel III builds upon the foundation of Basel II by introducing stricter capital requirements, liquidity standards, and a leverage ratio to enhance the resilience of the global banking system. While Basel II focused on risk-based capital requirements, Basel III expands on this by adding liquidity standards and a non-risk-based leverage ratio to prevent excessive risk-taking…
Read article