‘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
- 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 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 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 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 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.