EECS 1541 Lecture Notes - Lecture 28: Basel Ii, Basel Committee On Banking Supervision, Basel Iii
23 Jun 2018
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EECS 1541 Lecture 28 Notes
Introduction
Basel III Accord
Another key provision of the act is that banks entering Europe receive the same banking
powers as other banks there.
Similar provisions apply to non-U.S. banks that enter the United States.
Basel Accord Before 1988, capital standards imposed on banks varied across countries
This variance gave some banks a comparative global advantage over others when
extending their loans to MNCs.
Banks in countries that were subject to lower capital requirements had a competitive
advantage over other banks because (1) they could grow more easily and (2) a given
level of profits represented a higher return on their capital.
Furthermore, a bank so advantaged was not perceived by investors to have excessive
risk, despite its limited capital, because they presumed that its government would
protect it from failure.
In 1988, the central banks of 12 developed countries established the Basel Accord,
according to which their respective commercial banks were required to maintain capital
(common stock and retained earnings) equal to at least 4 percent of their assets.
For this purpose, banks’ assets are weighted by risk, which means that a higher capital
ratio is required for riskier assets.
Off–balance sheet items are also accounted for, so banks cannot circumvent capital
requirements by focusing on services that are not explicitly shown as assets on a
balance sheet.
Basel II Accord Banking regulators who formed the so-called Basel Committee
completed another accord (called Basel II) that subjected banks to more stringent
collateral guidelines to back their loans.
In addition, this accord encourages banks to improve their techniques for controlling
operational risk, which could reduce failures in the banking system.
Document Summary
Another key provision of the act is that banks entering europe receive the same banking powers as other banks there. Basel ii accord banking regulators who formed the so-called basel committee completed another accord (called basel ii) that subjected banks to more stringent collateral guidelines to back their loans. In addition, this accord encourages banks to improve their techniques for controlling operational risk, which could reduce failures in the banking system. The financial crisis in 2008 2009 revealed that banks were still highly exposed to risk, as many banks might have failed without government funding. Key provision of the act is that banks entering europe receive the same banking powers as other banks there. Similar provisions apply to non-u. s. banks that enter the united states. Basel accord before 1988, capital standards imposed on banks varied across countries. This variance gave some banks a comparative global advantage over others when extending their loans to mncs.
