Poly Financial Reg 5 - Basel I & 2 Basel Committee...

Info iconThis preview shows pages 1–11. Sign up to view the full content.

View Full Document Right Arrow Icon
Basel I & 2
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Basel Committee Consider regulatory issues related to activities of international banks in member countries Belgium Canada France Germany Italy Japan Netherlands Sweden UK US Luxembourg Switzerland 1975 Basel concordat – assigning supervisory responsibilities for: Country Supervisor Foreign bank sub – Liquidity Host Foreign bank sub – Solvency Host Foreign bank branch - Liquidity Home
Background image of page 2
Banco Ambrosiano Milan Banco Ambrosiano Affair Banco Ambrosiano Holdings Luxembourg Banco Ambrosiano Milan Bankruptcy Bank run Rescue Bankruptcy Bank run Rescue ? Concordat revised so that home and host supervisors have joint responsibility
Background image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
1988 Basel Accord (Basel I) Set of capital adequacy standards Tier 1 = core capital: common equity shares disclosed reserves non-cumulative preferred stock other hybrid equity instruments (capital instruments which combine certain characteristics of equity and certain characteristics of debt). retained earnings minority interests in consolidated subsidiaries (less goodwill and other deductions) Tier 2 = supplementary capital (all other capital) Upper tier: cumulative perpetual preferred stock, loan loss allowances, undisclosed value changes, general loan loss reserves, hybrid debt instruments (convertible bonds, cumulative preference shares)
Background image of page 4
Risk Weights by Credit Type Banks holding riskier assets must hold more capital as they have a higher probability of failure. The more creditworthy the loan, the lower the risk weight 0%: cash, gold, bonds issued by OECD governments 20%: bonds issued by agencies of OECD governments, banks of OECD governments, local governments and insured mortgages 50% uninsured mortgages 100%: all corporate loans and claims by non-OECD banks or government debts, equity and property Off-balance sheet instruments (letters of credit, futures, swaps, forex agreements) converted into credit risk equivalents and weighted by the type of counterparty to a given claim
Background image of page 5

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
GS Balance Sheet
Background image of page 6
GS Balance Sheet
Background image of page 7

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Example - Simple Bank Compute Tier 1 and Tier 2 Capital Compute simple capital asset ratio (unweighted assets) Assets Cash 2 OECD gvt bonds 30 Interbank loans 20 Mortgages (uninsured) 50 Company loans 103 205 Liabilities Equity 15 Dislosed Reserves 2 Subordinated debt 5 Customer funding (deposits) 180 Loan loss reserves 3 205
Background image of page 8
Assets Cash 2 OECD gvt bonds 30 Interbank loans 20 Mortgages (uninsured) 50 Company loans 103 205 Liabilities Equity 15 Dislosed Reserves 2 Subordinated debt 5 Customer funding (deposits) 180 Loan loss reserves 3 205 Tier 1 Equity 15 Dislosed Reserves 2 17 Tier 2 Subordinated debt 5 Loan loss reserves 3 8
Background image of page 9

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Assets Cash 2 OECD gvt bonds 30 Interbank loans 20 Mortgages (uninsured) 50 Company loans 103 205 Liabilities
Background image of page 10
Image of page 11
This is the end of the preview. Sign up to access the rest of the document.

Page1 / 34

Poly Financial Reg 5 - Basel I & 2 Basel Committee...

This preview shows document pages 1 - 11. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online