Performance
analysis of banks BASEL norms
These
rule written by the bank of international settlements committee of banking
supervision (BCBS)
How to
assess risks, and how much capital to set aside for banks in keeping with their
risk profile.
o tier one capital + tier two capital
Ø CAR= risk
weighted assets
Objectives
To
strength soundness and stability of banking system
To
protect depositors and promote the stability and efficiency of financial
systems around the world.
Basel I Norms
Ø Maintain minimum capital adequacy requirement.
Basel II Norms
Ø banking laws and regulation.
Risk based capital(pillar I)
The first
pillar sets out minimum capital requirement.
Measurement
and risk.
Measure
operational risk and market risk.
2.Risk
based supervision
To help
better management technique.
Assess
overall capital adequacy.
Supervisor
evaluate capital adequacy.
Banks to
operate minimum capital adequacy.
Preventing measures.
Risk to
disclosure to enforce market discipline (pillar III)
It
imposes strong incentives to banks to conduct their business in a safe , sound
,and effective manner.
Criticism of Basel II norm
Not suit
for difficult situation
Examination
or evaluation and supervisors.
Developing
countries.
Face
difficulties.
BASEL III NORMS
To create
an international standard that banking regulators can use when creating
regulationabout how much capital banks need to put aside to guard against the
types of financial and operational risks banks face.
Basel III
is a comprehensive set of reform measures, developed by the Basel committee on
banking supervision, to strengthen the regulation, supervision and risk
management of the banking sector.
Improve
the banking sectors ability to absorb shocks arising financial and economic
stress whatever the sources
Improve
risk management and governance
Strengthen
banks transparency and disclosures.
The reforms target:
Micro
prudential
Macro
prudential..
The overall goals of basel III
norms are:
To refine
the definition of bank capital
Quantify
further classes of risk
To further
improve the sensitivity of the risk measures
Measurement of operational risk:
The frame work from the committee presents three
methods for calculating minimum capital charge operational risk under pillar1:
The basic
indicator approach
The
standardised approach, and
The
advanced measurement approach(AMA)
Basic
indicator approach:
Average
annual gross income (net interest income+ net non interest income )
Fixed
percentage
KBIA=[∑(GI1.n
*α)]/
Advantages:
Simple
and transparent
readily
available
Risk.
Standardised
approach:
Annual
gross income per business line
Several
indicators – size or volume of banks activities in a business line, where banks
activities
are divided into eight business lines:
HISTORICAL
SIMULATION:
Risk
factor level
Replacing
the security
Measure VAR
MONTE
CARLO SIMULATION:
Estimate
VAR
Revaluating
the all position of portfolio
More time
consuming.
PARAMETRIC
SIMULATION:
VAR
estimation directly from the standard deviation
VaR=market
price *volatility
Volatilities
and correlations are calculated directly from users specified start and end
dates Stress testing
Marketing value of a portfolio varies due to
movement of market parameters such as interests rates ,market liquidity,
inflation , exchange rate , stock prices , etc…….,
Techniques
of stress testing
Simple
sensitivity test:-
Short
term impact of portfolio value.
Scenario
analysis:-
Risk
factors simultaneously.
Maximum
loss:-
identifying
the most potentially damaging combination of moves of market risk factors
STEPS FOR STRESS TESTING
Step-1:
Generate Scenarios`
Step-2:
Revalue portfolio.
Step-3:
Summarize results.
Related Topics
Privacy Policy, Terms and Conditions, DMCA Policy and Compliant
Copyright © 2018-2023 BrainKart.com; All Rights Reserved. Developed by Therithal info, Chennai.