Comparative overview of Basel Accords (I,II and III)
BCBS is a committee of banking supervisory authorities that was established by the central bank governors of the G-10 countries in 1974 with a proposal of working towards building new international financial structures with the goal of minimizing credit risk in financial sector. Basel accord is the guidelines on regulatory standards formulated by Basel committee on…
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Understanding three pillars of Basel II Accord
Three Pillars of Basel II accord: First Pillar of Basel II deals with maintenance of regulatory Capital calculated on three major risks the bankers are facing viz. Credit risk, Operation risk and Market risk. Second Pillar of Basel II deals with the regulatory answer to the first pillar, which enables the banks to review their…
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The Need for Risk-Based Regulation in a Changing Banking Environment
In today’s dynamic and increasingly complex financial world, risk-based regulation has become essential for ensuring the resilience, integrity, and adaptability of the banking sector. Unlike one-size-fits-all approaches, risk-based regulation tailors regulatory expectations based on the specific risks each institution faces. This allows for smarter resource allocation, improved risk mitigation, and better preparedness against emerging threats…
Read article Necessity and Goals of Banking Regulation
Banking regulation is fundamental to the integrity and stability of the financial system. It serves to prevent bank failures, protect depositors, reduce systemic risks, and promote public confidence. Effective regulation ensures that banks operate in a safe, sound, and transparent manner, enabling efficient capital allocation and fostering sustainable economic growth. Necessity of Banking Regulation 1.…
Read article Risk Regulations in the Banking Industry
Risk regulation is a cornerstone of financial stability. Banks operate in a complex environment and are exposed to various risks that can impact their solvency, profitability, and public trust. To safeguard the financial system, banks must adhere to stringent regulatory frameworks designed to ensure sound risk management and operational integrity. Key Risk Areas in Banking…
Meaning of Capital charge and calculation of capital requirement
In banking parlance ‘Capital charge’ refers to capital requirement (also known as regulatory capital or capital adequacy). The capital charge is usually articulated as a capital adequacy ratio (CAR) of equity that must be held as a percentage of risk-weighted assets. The banking regulator of a country tracks a bank’s CAR to ensure that the…
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