Skip to main content

BASEL norms 1,2 & 3

Challanges faced by global banks that lead entire world's bank to Switzerland's city called-BASEL:
1)Risk management: high NPA
2)Misuse of the banks: By gov and budinessman
3)banks transparency:banks different rate and profit and NPA should be in public domain
4)Credit allocation
SOLUTION:
led to Principal of global Banking:
1)Minimum Rjequirements
2)Supervisary review process
3)Market Discipline

Minimum Requirement:
It is the minimum level required by the banks to follow across the world. Here minimum requirement
is divided in two parts
 1)capital requirements(For banks to grow) 
2)Reserved requirements(for banks to be stable and minimise losses)
Supervisary review process:
RBI is the supervisor of banks in INDIA. so under this RBI has to make laws for license, guideline and
punishment. this is made for proper review of banking.
Market Discipline:
RBI makes it coumpusary for banks to publish all its details for public viewing.

BASEL1:   1988
AIM: "focused on Credit Risk"(focused only one among three solution stated above in principal of 
global banking)
Explaination: When bank gives loan to "X" and if there is a risk that "X" would not be able to pay back this type of loan given to"X" is called "Credit Risk".
Action: BASEL 1 launched RWA(Risk Waighted Asset)
            RWA(CAR)=(total risk)/(total asset)=atleast 8%

Drawback AKA path to BASEL 2:
>Principle of global banking has 3 principle written above. In this BASEL 1 complies with only 1) ie.
minimum requirement.
BASEL 2:   2004
AIM: to utilise all three princliple
EXTRA: increased RWA(CAR) to 9%...and also in total capital included both Tier 1(paid up capital which is 
normally owned by banks or industries whose tier 2 you are calculating) and Tier 2(secandry capital,
like debentures)

Drawback AKA path to BASEL 3:   2010
>Gobal Recession of 2008....puri duniya ki middle finger ho gyi thi.(Resession:  money supply in a
countory is less and unemployment is high).
>this recession had hit USA badly.look for my earlier article on this recession.
Action:1) RWA(CAR)=10.5% . since INDIA can't achive RWA=10.5% in 2010 and it baged time till 2020 so she 
       has to maintain RWA(CAR)=11.5% consedring the future scenerio.
       otherthan pricipal of global banking it focused on 1)liquidity and 2) Stablity.
       2)4.5% of RWA should be for common equity(Commons Equity=funds of the public...ie. public         share)
INCIDENT : destruction in faith of banking due to recession of 2008.
       3)Capital Conservation Buffer= this is simmilar to RWA(CAR), If in case bank fails and it is not 
       able to recover even from RWA(CAR) it will use CCB(Capital Conservation Buffer).
       CCB=2.5% of RWA(CAR)
       4)Counter Cyclical Buffer(Optional)=If in case economy is having lots of exchange or money             then this
       buffer is filled and if the money supply is less this buffer will be empitied. This is just to provide         addtional security.

Comments

Popular posts from this blog

USA violating international cyber Law

Any law not only cyber security, related should not be violated for any purpose, although we can change the rule following the proper guide lines enshrined within the law. The main reason to this argument is simple, as any law gains its strength till it is followed once violated irrespective of the reason weakens its sole purpose. Now in today’s digital world information is the most precious thing we have to keep as a individual or as a nation. Violating cyber laws creates a big dent on our future’s security as no one knows the value of information which one thinks to be null today, in future. Violating cyber laws by USA can lead to big brother syndrome for rest of the country who are not that technically advanced in digital arena. And it will eventually lead to mistrust impacting international ties which may in extreme scenario result in conservative approach by various nation in economic world , mostly by the countries having trade deficit with USA. This segregation of ec...

vyapam-- the biggest scam

the vyapam is an admission and recruitment scam involving politicians. senior officials and businessmen in the indian state of Madhya pradesh professional examination board that is MPPEB....in hindi it is popularly known as VYAPAM: givrn below are curtain mysterious deaths from vyapam ...taken from wikkipedia 21 November 2009 Vikas Singh Thakur Middleman in PMT scam Died in Barwani because of illness and adverse drug reaction 2 12 June 2010 Shyamvir Yadav Middleman in PMT scam from Gwalior Died in Raisen in a road mishap 3 14 June 2010 Anshul Sachan 24-year old MBBS student, who joined the Sagar Medical College in 2009. Allegedly a middleman in the PMT scam. He and two of his friends died in a road mishap, while returning from Bhopal to Sagar. Their car crashed into a truck near Raisen. According to Anshul's father, the three were drunk and were probably over-speeding. His grandfather does not suspect any foul play in the death either. The truck driver was arrested and late...

evaporation

what causes water to evaporate every fluid (pure) has a definite vapor pressure at a fixed temperature , now if any how the partial pressure of the fluid is less then the the vapor pressure of the fluid then the fluid starts evaporating to attain the partial pressure equal to the  vapor pressure of the fluid, and then the equillibrium is reached and evaporation stops.                              basically at the top of the fluid there is a random motion of the fluid molecule due to the difference between the addhesve and cohesive forces, some molecule say 'n' goes into the vapour phase and some strikes back say m such that n>m then after the above explained condition is achieved then the constraint m=n. conclusion whenever there is the fluid in liquid state is  present then in that system partial pressure is exactly to the ...