Banking : Theory And Practice

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Banking: Theory & Practice FINA3304: 2015 Group Assignment Task 1: Basel III – Capital adequacy

Basel III consists of a comprehensive set of reform measures intended to improve the regulation, supervision and risk management of the banking sector (APRA 2013). Being developed mainly in response to the credit crisis of 2007, it requires banks to maintain adequate leverage ratios and meet certain capital requirements. Basel III builds on the basis of previous Basel I and Basel II and is aimed at improving the banking sector’s ability to deal with financial stress and turmoil, strengthen the banking sectors transparency and improve risk management (Investopedia 2015).
In Australia, the Australian Prudential Regulatory Authority
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Since 2010 APRA has been involved in the active implementation of a series of updates to its prudential standards to ensure consistency with the capital requirements of the Basel III framework. In September 2012 APRA published a ultimate set of prudential standards that address the foremost elements of the Basel III capital reforms in Australia. Subsequently, in November 2012 they also issued a package of final actions, including requirements for counterparty credit risk, which completed APRA’s implementation of the Basel III capital reforms for ADIs (McCoach 2014). Graph 1B (see appendix) shows how the minimum Tier 1 capital requirement have been increased, from 4 per cent to 6 per cent of risk-weighted assets, which will take effect once fully phased in. APRA required ADIs to meet its new capital requirements for CET1 capital and Tier 1 capital at the beginning of 2013, which was two years ahead of the phase-in deadline, and also required ADI’s to adhere to the full capital conservation buffer requirement at the start of 2016 as shown in Graph 1B (Reserve Bank of Australia 2013). Australia has implemented certain aspects of Basel III ahead of the scheduled timeline to ensure that banks and other ADI’s have a significant amount of time to prepare for implementation.
The predominant goal of the
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