Management Regulations : Basel II

1405 WordsMay 10, 20166 Pages
Ch. 2.2 Risk Management Regulations Basel II Carrying out Framework which is a set of integrated services that enable banks toward advanced risk management approaches. The framework includes a methodologies, set of tools, industry’s best practices and ready to deploy assets that shorten the implementation time and suggestively reduce risks rising from noncompliance, poor quality administration, and budget and time over runs. The Basel Committee on Banking Supervision is an institution made by the central bank Governors of the Group of 10 nations - G10 (Belgium, Canada, France, Italy, Japan, the Netherlands, the United Kingdom, the United States, Germany and Sweden). The Basel Committee frames broad supervisory standards and guidelines and…show more content…
Basel II sets up rigorous risk and capital management requirements designed to ensure that a bank holds capital reserves appropriate to the risk the bank exposes itself to through its lending and investment practices. Basel II uses a three pillars concept 1 Minimum capital requirements (addressing risk) 2 Supervisory review 3 Market discipline – in order to promote greater stability in the financial system. The second pillar deals with the regulatory response to the first pillar. It also delivers a framework for dealing with all the other risks a bank may look, like systemic risk, pension risk, concentration risk, strategic risk, reputation risk, liquidity risk and legal risk, which the accord pools under the title of residual risk. It gives banks a power to review their risk management system (van Greuning, Brajovic Bratanovic, 2009) (Tarullo, DK, 2008)). To address deficiencies in the financial regulations revealed by the financial crisis affecting the world since 2008 it was developed a new Basel Accord, - BASEL III. BASEL III is a global regulatory standard on bank capital tolerability, stress testing and market liquidity risk agreed upon by the members of the Basel Committee on Banking Supervision in 2010-11. Basel III strengthens bank capital requirements and introduces new regulatory requirements on bank liquidity and bank leverage. (Tarullo, DK, 2008) Some of the measures announced in the new Basel III framework will need banks to hold 4.5% of common
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