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Controls of capital adequacy standard in accordance with Basel II requirements

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Controls of capital adequacy standard in accordance with Basel II requirements

Post  claud39 on Sun Nov 18, 2018 8:13 am

https://cbi.iq/news/view/930



November 18, 2018

Controls of capital adequacy standard in accordance with Basel II requirements






To all licensed commercial banks ( the capital adequacy adequacy controls in accordance with the Basel III requirements ) ... Click here to download


https://cbi.iq/static/uploads/up/file-154252811462306.pdf

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Re: Controls of capital adequacy standard in accordance with Basel II requirements

Post  claud39 on Sun Nov 18, 2018 9:21 am

https://www.mawazin.net/Details.aspx?jimare=20617



[size=36]Central Bank: Commercial banks must comply with the capital adequacy standard[/size]








18/11/2018




































BAGHDAD - 
The Central Bank of Iraq on Sunday, all commercial banks with the criterion of adequacy of capital minimum limits. 
"In order to keep abreast of developments in the global banking system and in order to reach the Basel Committee's decisions, banks will have to adhere to the minimum capital adequacy criteria," the bank said in a statement received by Mawazine News. 
The bank added that "the minimum limits will be based on the method of calculation adopted according to the conventional bands."

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Re: Controls of capital adequacy standard in accordance with Basel II requirements

Post  claud39 on Sun Nov 18, 2018 10:08 am

https://www.almaalomah.com/2018/11/18/365475/



The Central Bank calls on commercial banks to adhere to the approved account method




18/11/2018













Information / Baghdad ...
The Central Bank of Iraq called on Sunday for commercial banks to adhere to the minimum capital adequacy criteria to reach the "Basel" banking supervision.
"In order to keep abreast of developments in the global banking system and in order to reach the Basel Committee's decisions, banks will have to comply with minimum capital adequacy criteria," the bank said in a statement.
He explained that "compliance with the minimum will be based on the method of calculation adopted in accordance with conventional contexts."

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Re: Controls of capital adequacy standard in accordance with Basel II requirements

Post  claud39 on Sun Nov 18, 2018 10:23 am

https://www.lafinancepourtous.com/decryptages/marches-financiers/acteurs-de-la-finance/comite-de-bale/rappel-sur-la-reglementation-bale-ii/


[size=44]Basel II Reminder[/size]

UPDATED FEBRUARY 20, 2014



finance for all




The Basel II agreements were based on three pillars. The first was to define the minimum capital requirements for banks to cover the top three risks they face. The second introduced the principle of individualized prudential supervision. Finally, the third focused on the notions of transparency and market discipline.

The 3 pillars of Basel II



Pillar 1: Minimum capital requirements


As early as 1988, the Basel I ratio (or Cooke ratio) was created to limit the credit risk , ie the risk of non-repayment associated with a loan granted by a bank. Equal to 8%, this ratio was measured by comparing the amount of its  regulatory capital to the level of a bank's commitments (loans and other commitments, notably those appearing off-balance sheet). These commitments were weighted by counterparty riskwhich could be nil (OECD States), weak (banks or local governments for which a coefficient of 20% was applied) or strong (firms or individuals for which the coefficient applied was 100%, unless the existence of collateral reduces the risk to 50%).
Regulatory own funds included shareholders' equity (core capital consisting mainly of share capital and reserves) and supplementary capital (which included general provisions, perpetual subordinated notes and subordinated bonds convertible or redeemable in shares. ).


If the bank grants a loan to a company for a total amount of 100 million euros, it must have a minimum of 8 million euros of capital to meet the Basel I standard. On the other hand, if it lends the same amount to a local authority (a French region, for example), its commitment will be 100 million × 20% or 20 million and it will have to have only 1.6 million equity (8% of 20 million) . If the same loan is granted to an OECD country (such as France), the bank does not need to put equity in relation to this commitment, since the risk of default is considered to be zero. 


Problem: The Cooke ratio only took into account part of the risk to a bank. In particular, neither  market risk  nor operational risk were taken into account .
The so-called Basel II agreements thus define a new bank solvency ratio, called the "Mac Donough" ratio, based on the same principle as the Cooke ratio. It is defined as follows:

This ratio refines the precedent by requiring credit institutions to hold a level of minimum capital more in line with all the risks incurred.
In addition, additional requirements are introduced regarding the composition of own funds. Thus, the solvency ratio is split into two complementary elements:


  • The first "Tier 1" ratio , at least equal to 4% of the risks, must include risk-free capital. It is itself broken down into two sub-ratios: the "Core Tier 1", of 2% minimum, which takes into account for the calculation of the equity only the shares and reserves constituted of the undistributed profits, and the " Core Tier 2 "-equally at least 2% of the risk-weighted risk, which includes super subordinated securities (perpetual bonds) or some hybrid securities with close similarities to capital (such as convertible bonds ).
  • The second, known as "Tier 2" , also at least equal to 4%, includes additional own funds but can not exceed 100% of Tier 1 capital. These include subordinated notes with indefinite duration.



The Basel II regulation also provided for the inclusion of "complementary" capital (known as Tier III) specifically dedicated to hedging market risk. It included excess Tier II capital (the amount eligible under Tier II but exceeding 100% of Tier 1 capital) as well as subordinated debt securities with an original maturity of at least 2 years.
In addition, the methods for calculating credit risk have also been modified. The calculation includes a weighting that takes into account both the default risk of the counterparty, via a probability of default associated with each borrower, and the loss rate in case of default. These two parameters can be defined either by using a standard method (probability of default estimated by rating agencies, loss rate in case of default imposed by regulation by the regulator), or by resorting to a specific internal method. at the banking institution (in this case the method must have been validated by the regulator), either by resorting to a mixed method (probability of default estimated internally and loss rate in case of default imposed by the regulator). 

A credit granted to a company will have a lower probability of default as the financial rating of the company by a rating agency (such as Standard and Poor's or Moodys) will be good. Suppose the company gets the best rating possible. In this case, its probability of default will be low. In the context of the standard method, the bank will then have to apply a weighting factor of its claim corresponding to this low probability of default and which is defined by the prudential regulations. As this coefficient is set at 20%, the risk taken into account for the calculation of the solvency ratio is therefore 20% of the balance of the credit granted. Under Basel I, the latter would have been included in the calculation of risk.

Pillar 2: A prudential supervision procedure


The second pillar of the Basel II agreements organizes a structured dialogue between bank supervisors and financial institutions under their control.
To this end, it provides for the establishment by the banks themselves of internal processes for monitoring and calculating risks (including those in Pillar 1) and associated capital requirements.
Supervisors are then asked to compare their own risk profile analysis with that of the bank and, based on their findings, to take action. In particular, they may require the bank to increase its own funds beyond the minimum capital ratio required by Basel II.

Pillar 3: Discipline Market


Pillar 3 aims to establish financial transparency rules by improving the communication of information to the general public on assets, risks and their management.
The underlying objective is to standardize banking practices in terms of financial communication and thus facilitate the reading of accounting and financial information of banks from one country to another.

The Basel II deficiencies


The financial crisis of 2007/2008 highlighted the fact that the financial institutions' own funds were insufficient or of poor quality. Some risks had been little or poorly identified for two reasons:


  • the complexification of transactions on the financial markets (structured products, securitization );
  • the failure of internal control and the governance of banking institutions (in many cases);
  • the inadequacies of the control exercised by the regulators in a world where there was undoubtedly excessive confidence in self-regulation.


Banks have not been able to correctly assess the risks they were taking so that their level of capital was not in line with the reality of the risks on their balance sheets or in their off-balance sheet (see our article on decryption). on the accounts of a bank ). As a result, the banking system was unable to absorb its losses on trading and credit activities, which then took on a systemic dimension. In addition, many institutions, which had shifted away from liquidity risk management , faced strong tensions when the money market has been brutally blocked, forcing central banks to intervene to ensure its proper functioning and sometimes to support some banks. 

Basel II to Basel III: stronger prudential rules



Given the scale and speed with which the financial crisis has spread around the world and the unpredictable nature of crises, it has become essential that all countries strengthen the resilience of their banking sector. This is the purpose of the Basel III agreements adopted by the Committee on 12 September 2010 and endorsed by the Heads of State and Government at the G20 meeting  in Seoul on 11 and 12 November 2010. These agreements establish several measures aimed at reforming the international prudential system in depth. They draw the consequences of the inadequacies of the Basel II regulation and impose a reinforcement of the standards in terms of bank solvency and liquidity.

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Re: Controls of capital adequacy standard in accordance with Basel II requirements

Post  claud39 on Sun Nov 18, 2018 1:39 pm

http://paperjam.lu/news/valide-bale-iii-doit-maintenant-etre-mis-en-place


[size=64]Validated, Basel III must now be put in place[/size]






The European Commission will carry out an in-depth consultation and an impact assessment of the document agreed by the Basel Committee (photo) before ratifying it.

(Photo: www.bis.org)


08 DECEMBER 2017



Regulators around the world agreed Thursday on the regulation that aims to strengthen the solvency of banks, after finding a compromise on the "ceiling" of capital reserves that will be justified by banks from 2027.

This weekend has been fertile in negotiations. While Britain and the European Union announced on Friday that they agreed on several key points around Brexit, the Basel committee announced a day earlier to have reached an agreement on a new banking regulatory framework known as "Basel III. " It aims to harmonize prudential rules to strengthen the solvency of large banks in the event of a new crisis.
"The approval of the Basel III reforms is a major step that will ensure a more solid capital structure and improve confidence in banking systems," said Mario Draghi, who chairs the country's governing body, in a statement. Basel committee of supervisory bodies of the banking sector around the world. "The approved program completes the comprehensive reform of the regulatory framework launched following the financial crisis."

72.5% minimum by 2027


The main point of this agreement concerns the amount of capital that the banks will now have to justify and the calculation rules that will serve to define it. This aspect was a bone of contention between the United States and the European Union. The former wanted this to be at least 75%, according to the "standard" calculations defined by the committee. The second campaign was for a maximum of 70% because it considered that the rules already imposed within the Community space were sufficient.
The pear was finally cut in half, since the minimum requirement was set at 72.5%. The implementation of this capital floor will be gradual. It will have to reach 50% in 2022 and will be raised to 70% in 2026, then 72.5% in 2027.


[size=34]Introducing this floor can significantly affect the global competitiveness of European banks.[/size]



Wim Mijs, CEO of the European Banking Federation (EBF)
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This agreement must now be ratified by all the countries concerned. However, this phase may be long, especially in Europe. The document agreed upon by the regulators represented in the Basel Committee will be subject to "in-depth consultation" and will be followed by an "impact assessment" to assess the consequences. for the EU economy, the Commission said just after the committee's announcement. Only then will the new provisions have to be voted by the European Parliament.
For its part, the European Banking Federation (EBF) said in a statement that "there was a clear risk that the costs of the measures (necessary to bring the new rules into compliance, note) for the entire economy European benefits outweigh the benefits ".
"We must not lose sight of the fact that the introduced floor can seriously harm our European economy and the global competitiveness of European banks," said EBF CEO Wim Mijs. "It is therefore important that all regulators introduce the new requirements in a harmonized way."

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Re: Controls of capital adequacy standard in accordance with Basel II requirements

Post  claud39 on Sun Nov 18, 2018 1:43 pm

http://www.osfi-bsif.gc.ca/Fra/osfi-bsif/med/Pages/nr20171207.aspx


OSFI welcomes latest Basel III reforms



Press release


For immediate release

OTTAWA - December 7, 2017 - Office of the Superintendent of Financial Institutions Canada

The Office of the Superintendent of Financial Institutions (OSFI) welcomes the final pieces of the Basel III reform that have been endorsed by the Group of Central Bank Governors and Banking Supervisors, the committee responsible for overseeing the Basel Committee on Banking and Finance. banking supervision. This announcement, made following a meeting earlier today in Frankfurt, Germany, concludes all regulatory measures created in response to the financial crisis.

The Basel III reforms have been implemented gradually in recent years through the adoption of a series of regulatory amendments. They aim in particular to increase the resilience of banks; resilience that had proven flaws during the financial crisis. The Basel reforms adopted so far have focused on the quantity and quality of capital and bank liquidity. The new package of measures finalized today will improve the risk sensitivity of capital standards. It will also contribute to enhancing the transparency and consistency of risk exposure assessment and reporting processes as well as the capital resources held to hedge these risks.

OSFI will launch a public consultation exercise on the domestic implementation of the Basel III reforms in the spring of 2018. The consultation will focus on the reform adaptation proposals for the Canadian context as well as on the implementation schedule.

Quote


"Canada is pleased to be part of this agreement," said Superintendent Jeremy Rudin. The completion of the Basel III reforms is an important step in ensuring that the capital adequacy of banks worldwide is credible and thus increases confidence in the banking sector. "

Some facts



  • The Basel Committee on Banking Supervision (BCBS) is the leading prudential standard setting body for banks worldwide and serves as a forum for collaboration on supervisory issues. Its mandate is to tighten the regulation, supervision and practices of banks around the world to enhance financial stability. Canada is represented by senior executives from OSFI and the Bank of Canada.

  • The Group of Central Bank Governors and Bank Supervision Officers is the supervisory body of the BCBS. Canada is represented by the Superintendent of Financial Institutions and the Governor of the Bank of Canada.



Related Links




OSFI


The Office of the Superintendent of Financial Institutions (OSFI) is an independent federal agency founded in 1987. Its mandate is to protect depositors, underwriters, creditors of financial institutions and pension plan members, while allowing financial institutions to compete and take reasonable risks.

Press relations


Annik Faucher 
OSFI - Public Affairs 
annik.faucher@osfi-bsif.gc.ca 
613-949-8401

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Re: Controls of capital adequacy standard in accordance with Basel II requirements

Post  claud39 on Sun Nov 18, 2018 1:46 pm

https://www.lafinancepourtous.com/decryptages/marches-financiers/acteurs-de-la-finance/comite-de-bale/bale-iii/

[size=44]Basel III[/size]

UPDATED ON JANUARY 04, 2017



finance for all






Basel III is the third set of agreements established by the Basel Committee, after those of Basel I and Basel II. Concluded in 1988, the so-called Basel I agreements defined a solvency ratio, called the "Cooke" ratio, which required the capital  of international banks to be not less than 8% of their total weighted credit commitments. This agreement was transposed in the European Union in 1989 and in the G10 countries  in 1992. In France, the European directive was incorporated into the prudential regulation in 1991.




As a reminder, this ratio was divided into two components: the numerator, corresponding to the measurement of regulatory capital , and the denominator, measuring risk-weighted assets. The capital adequacy ratio was to be at least 8%.
In June 2004, a new capital adequacy measure was adopted by the Basel Committee to replace the "Cooke" ratio. This new arrangement, referred to as the Basel II Accord, came into force on December 31, 2006. It provides for more comprehensive coverage of banking risks, encourages institutions to improve the internal management of their risks and refines the method of calculating the risk. solvency ratio (link with dico "bank solvency ratio").
In 2010, in response to the financial crisis , the Basel Committee presented the Basel III reform. This time, the goal is to increase the resilience capacity (ie the ability to adapt to the economy) of the major international banks. These new agreements include a strengthening of the level and quality of capital and increased management of their liquidity risk. These rules have been transposed into European Community law through a so-called CRD 4 directive (Capital Requirements Directive 4).
As regards the denominator, the range of risks taken into account in the previous regulation has been broadened. In particular, new counterparty risk provisions  have been put in place.

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Re: Controls of capital adequacy standard in accordance with Basel II requirements

Post  claud39 on Sun Nov 18, 2018 2:03 pm

https://www.culturebanque.com/credit-financement/principes-bale-3/



[size=34]Basel III: the fundamental principles[/size]








Culture Bank > Credit > Basel III: The Fundamentals




 Benjamin Beaudon

August 12, 2015












Equity, leverage, liquidity risk, are all term "nebulous" mentioned in the press and news reports since the financial crisis. However how many people can exactly define them and discuss their impact on banks but also on the economy?
More information on credit and regulation on this blog!

Banks and financial markets are regulated. First there was the Basel I reform, then came Basel II and its Basel 2.5 revision. Following the financial crisis, the various stakeholders of these regulations wanted to put in place measures so that crises such as the latter can not happen again (or at least try that this kind of crisis can not happen again) . To do this, a new "version" of this reform was born under the name of Basel III . The latter came into force in 2010 (for implementation from 1 st January 2019) is composed of several main roads.

Strengthen the level and quality of equity

The objective of this first point is that banks are better protected in case of major losses. To this end, the Basel Committee has put in place two important points:

  • Minimum regulatory capital requirement (Tier 1 and Tier 2) for risk-weighted risks remains unchanged at 8%. (McDonough * ratio). Tier 1 is the "hard core" of equity (contains, among other things, share capital and retained earnings) and Tier 2 is Tier 1 + of guarantee funds or provisions.
  • Increase in core capital ratio, Core Tier One ratio, to 4.5% + a safety mattress of 2.5% or 7%.

[size]
The solvency ratio of the banks must therefore be 10.5% (8% + 2.5% tier 1) and not 8% as required by Basel II.
McDonough Ratio: Equity> 8% of [85% Credit Risk + 5% Market Risk + 10% Operational Risk]

Capping the leverage effect

Leverage is the ratio of the total assets to the bank's own funds  (see how a bank's balance sheet works). For most banks, this report was important before the crisis. Shareholders may have an interest in having their company increase its debt in order to invest in profitable assets rather than increase their capital. However, if the value of assets declines sharply as occurred during the crisis, the less profitable are sold in mass on the markets and thus amplify the spiral of losses (Understanding disposals of banks' assets).
To avoid this, this ratio is set at 3%.

Set up two liquidity ratios to improve liquidity risk management

First of all, what is liquidity risk? It is simply the lack of liquidity to deal with the receivables or the fact of not being able to sell a product at a good price. For example, banks face this risk when their savers withdraw more money than there are deposits.
In order to avoid this kind of exposure, the Basel Committee has set up two ratios:
[/size]

  • The LCR (Liquidity Coverage Ratio) allows banks to withstand a significant liquidity crisis for a month. The objective is for liquidity reserves to be greater than the net cash outflows over a month.
  • The NSFR (Net Stable Funding Ratio) whose objective is that the amount in stable funding is greater than the amount of stable funding required so that the institution can operate for a year in a context of prolonged tension.

[size]
The points mentioned below are of course only the "submerged part of the iceberg" and represent only the main lines of this reform. We will be able to deepen these points in other articles or if you wish it, do not hesitate to go on the site of the ACPR  : http://acpr.banque-france.fr/lacpr.html[/size]




Benjamin Beaudon

Consultant Finance at Harwell Consulting
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