Pillar III Market Discipline Public disclosure of key measures relating to

Pillar iii market discipline public disclosure of key

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PillarIII:MarketDiscipline:Public disclosure of key measures relating tobank’s risk and capital positions.
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73IBS -The New Basel Accord – Implication for BanksBangalore8/18/2018 11:32:30 PMMinimum Capital RequirementsRules to calculate required Capital forCredit Risk Market Risk Operational RiskQuantification menuSupervisory assessment Of banksRisk management policies Economic Capital Process Additional Capital requirementsSupervisory Review ProcessMarket DisciplineImproved disclosure of Capital structureRisk measurement & Management practices Risk profileCapital adequacyDisclosuresPillar 1Pillar 2Pillar 3Basel II –FrameworkCapital Adequacy
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74IBS -The New Basel Accord – Implication for BanksBangalore8/18/2018 11:32:30 PMQualitativeMeasuring Credit RiskCredit Risk defines the minimum capital required to cover exposure to customers and counter parties.Approach for credit risk.1. Standardized Approach2. Foundation IRB(Internal Rating Based) Approach3. Advanced Internal Rating Based (IRB) Approach
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75IBS -The New Basel Accord – Implication for BanksBangalore8/18/2018 11:32:30 PMStandardized ApproachIn this approach, the bank allocates a risk-weight to each of its assets and off-balance sheet items.It then calculatessum of risk-weighted asset values.A risk weight of 100% indicates that an exposure is included in calculation of assets at full value.The capital charge is equal to 8% (9%)of the asset value.This approach includes a higher sensitivity to risk.In Basel I : individual risk weights were dependent on the category of borrowers such as sovereign nations or banks.
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In Basel II: the risk weights can be defined by referring to a rating provided by an external credit assessment agency.
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76IBS -The New Basel Accord – Implication for BanksBangalore8/18/2018 11:32:30 PMInternal Rating Based Approach (IRB)Banks use their internal evaluation systems to assess a borrower’s creditrisk.The results are translated into estimates ofpotential future loss, thereby defining the basis of minimum capital requirements. Supports corporate, sovereign and bank exposures.
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77IBS -The New Basel Accord – Implication for BanksBangalore8/18/2018 11:32:30 PMFoundation Approach: Using thismethodology, banks can estimate the risk of default or the Probability of Default (PD) associated with each borrower.Additional risk factors such as LGD(Loss given default) and EAD (Exposure at Default) are standardized by supervisory rules that arelaid down and monitored by regulating authorities.
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78IBS -The New Basel Accord – Implication for BanksBangalore8/18/2018 11:32:30 PMProbability of default (PD)Probability of default (PD) is a financial term describing the likelihood of a default over a particular time horizon.
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