Capital Adequacy and Risk Management in Banks - 1498 Words

CAPITAL ADEQUACY FRAMEWORK AND RISK MANAGEMENT IN BANKS GUEST LECTURE: MR. R M PATTANAIK EX GM- INDIAN OVERSEAS BANK CAPITAL ADEQUACY RATIO (CAR) Also known as Capital to Risk (Weighted) Assets Ratio (CRAR) is the ratio of a bank’s capital to its risk. National regulators track a banks CAR to ensure that it can absorb a reasonable amount of loss and complies with statutory capital requirements. It is a measure of a banks capital. It is expressed as a percentage of a banks risk weighted credit exposures. This ratio is used to protect depositors and promote the stability and efficiency of financial systems around the world. Two types of capital are measured: tier one capital, which can absorb losses without a bank being†¦show more content†¦* Basel 3: Basel III is part of the continuous effort made by the Basel Committee on Banking Supervision to enhance the banking regulatory framework. It builds on the Basel I and Basel II documents, and seeks to improve the banking sectors ability to deal with financial and economic stress, improve risk management and strengthen the banks transparency. BASEL-I vs. BASEL-II THE 3 PILLARS OF BASEL II Basel – II norms are based on 3 pillars: * MINIMUM CAPITAL – Banks must hold capital against 8% of their assets, after adjusting their assets for risk. Capital for credit risk, market risk and operational risk. * SUPERVISORY REVIEW – It is the process whereby national regulators ensure their home country banks are following the rules. This pillar works on 4 principles: 1. Measurement of own risk and capital adequacy of banks (ICAAP) 2. Supervisory review of internal banking procedures (SREP) 3. Capital above the regulatory minimum 4. Supervisory action: intervention at an early stage to prevent slippage. * MARKET DISCIPLINE – It is based on enhanced disclosure of risk. This pillar compliments Pillar 1 and Pillar 2. 5. Encourages disclosure requirements to enable market participants to assess the capital adequacy of the bank. 6. Disclosure of qualitative and quantitative aspects pertaining to: scope ofShow MoreRelatedCapital Requirements And Risk Management 1424 Words   |  6 PagesOn September 12th, the 27 central banks in Switzerland finally unanimously adopted new banking regulatory agreement - the Basel III, this agreement greatly enhance the regulatory industry to a minimum proportion of bank core capital requirements, this is a agreement after the financial crisis, the largest global regulatory reform achievements made by the banking sector. Compared to more emphasis on banks own internal control and management, regulatory review process and market discipline, theRead MoreEssay about Role of Apra1166 Words   |  5 Pagessupervision and depositor protection moves from the Reserve Bank to APRA. Its intention is to provide for a ‘more consistent, competitively neutral and efficient approach to the regulation of financial institutions, while enhancing overall depositor protection and financial system stability’1. This paper will thus find out about ARPA’s responsibilities related to banking in traditional sense of the term. First of all, a quick glance at ‘what is a bank’ should be made and it can come to surprise to findRead MoreIntroduction: The financial sector has been hit badly by the financial crisis in 2008. The1600 Words   |  7 PagesIntroduction: The financial sector has been hit badly by the financial crisis in 2008. The increased competition between banks induced executives to take excessive risk to maximize bank’s profit, as their performance compared to other competitors is measured by the revenues they achieve to financial institutions and its stock value (Kashyap, Rajan et al. 2008). Banks went into trouble especially after the expansion of mortgage finance and facilitating loans to homebuyers with the lowest possibleRead MoreBasel 2 is the second Basel after Basel Accords known as Basel 1. By using Basel 2 in Australia,1100 Words   |  5 Pagesregulatory capital with the single risk profiles of financial institutions, a bank with greater exposure to the risk of peers who will hold more capital, while the less exposed to the risk that will hold less capital. Picture 1.1 Picture 1.1 shows that Basel 1 (Accord) has a risk-weighted at one hundred percent with $100 loan to the corporate entity and a total capital charge of $8. Beside that, through a standardized approach of Basel II, the corporate entity is rating AA, generate credit risk capitalRead MoreThe Importance Of A Credit Risk Management973 Words   |  4 Pagesprocess of controlling credit risk management by the banking industries from all over the world. Proper consideration of these factors in for the proper credit risk management process is very essential. Thus the study of these factors is always helpful for the banks. 2.2.1.1 Importance of proper policy for risk management in banks While looking at the events of financial crisis of the various countries it can be said that misunderstanding of the development of the risk factors from their roots andRead MoreFinancial Performance Of The Non Performing Loans Ratio1356 Words   |  6 PagesIntroduction To determine whether the SDB stocks are correctly priced, the financial performance of the SDB is assessed through its asset quality, earnings capability and capital adequacy. The suitability of the stake at 1.6 times the book value is also considered. All graphs and exhibits mentioned in the report are in the appendix. It should be noted that the analysis of this investments are purely done on information provided in the case study so limitations apply. Asset Quality The non-performingRead MoreThe Implementation Of Basel IIi894 Words   |  4 Pages1 On 20 May this year the Amendment to the Banks Act regulations (Regulations) in terms of section 90 of the Banks Act, 1990 (Banks Act) were published in the government gazette and will come into effect on 1 July 2016. A number of cosmetic changes have been made to the Regulations but a few material changes will be highlighted in this alert. 2 Subsequent to the implementation of Basel III in South Africa on 1 January 2013, the Basel Committee on Banking Supervision (BCBS) issued revised requirementsRead MoreHedge Funds : Hedge Fund1628 Words   |  7 Pagescharacteristics. With a rapid rate of growth, the hedge fund industry also attracts attention of academics. They have analysed the performance of hedge funds from different perspectives and implied the necessity of further researches on hedge funds’ capital adequacy. In 2000, Fung and Hsieh used a mean-variance approach to study hedge fund exposures in some major market events. They analysed hedge fund performance during turbulent market times. But due to limitations of their research methodology, they foundRead MoreBanking System Stability Is Largely Built On A Number Of Internal And External Characteristics1270 Words   |  6 Pagesvariables include Capital adequacy, Asset quality, Management quality, Earning, Liquidity, to analyze the probability of bank failures. Their study documented that smaller banks and well-capitalized banks can obtain a higher degree of capacity to maintain stability individually, and comparing to universal banks, they contribute more to the stability of a nation s banking system. Those variables reflect the internal environment for operations of an individual bank and may be varied while banks choose toRead MoreNarasimham Committee on Banking Sector Reforms1298 Words   |  6 Pagesfocussed on issues like size of ba nks and capital Adequacy ratio among other things The 1998 report of the Committee to the GOI made the following major recommendations: Autonomy in Banking Greater autonomy was proposed for the public sector banks in order for them to function with equivalent professionalism as their international counterparts.[11] For this the panel recommended that recruitment procedures, training and remuneration policies of public sector banks be brought in line with the best-market-practices