‘Basel III Accord’ or simply ‘Basel III’, often seen in the news, seeks to

[UPSC Civil Services Exam – 2015 Prelims]

(a) develop national strategies for the conservation and sustainable use of biological diversity

(b) improve banking sector’s ability to deal with financial and econo-mic stress and improve risk management

(c) reduce the greenhouse gas emissions but places a heavier burden on developed countries

(d) transfer technology from developed countries to poor countries to enable them to replace the use of chlorofluorocarbons in refrigeration with harmless chemicals

Answer: (b)        

Explanation:

Basel Committee:

• Basel accords refer to the Banking supervision accords issued by the Basel Committee on banking supervision.
• The Basel Committee on banking supervision is a global standard committee for the regulation of banks.
• Established by the central bank governors of 10 countries in 1974.
• Objective – to improve the quality of banking supervision worldwide.
• Headquarters – Basel, Switzerland.

Basel Norms:

• Basel norms are the international banking regulations to strengthen the international banking system.
• It is in the form of an agreement by the Basel Committee of Banking supervision which mainly focuses on the risk to banks and the financial system.

Basel-I norms:

• Basel, I was introduced in 1988 and focused on credit risk.
• India adopted Basel 1 guidelines in 1999 as it defines the capital and structure of risk weights for banks.
• The minimum Capital requirement was fixed at 8% of risk-weighted assets.

Basel-II norms:

• Basel II norms were established in 2000 and were based on three parameters capital adequacy requirement, supervisory requirement, and market discipline.
• A minimum capital adequacy requirement of 8% of risk-weighted assets was fixed.

Basel-III norms:

• Basel III norms were issued in 2010 as a response to the financial crisis of 2008.
• It aims to promote a resilient banking system by focusing on capital leverage funding and liquidity.
• The capital adequacy ratio was fixed at 12.9%.
• The leverage rate was fixed at 3%.
• Banks’ strength was improved Liquidity Coverage Ratio and Net Stable Fund Rate.