Basel Accord - Essay Example

Extract of sample
Basel Accord

The paper tells that the Basel Committee on Bank Supervision (BCBS) was originally established in the 1970s to tackle the new challenges of banking across international boundaries. It became apparent that the failings and collapse of one country's banks was now being felt in other countries all over the world. It was obvious that intervention and prevention was necessary. In the 1980s, the United States Congress, pushed domestic regulatory agencies to set and enforce standards, including a fixed proportion of capital a bank must hold, or capital adequacy. This is how the Basel Accords began. The accords have been adapted and expanded in attempts to meet needs and to speak to aspects that previous version of the accords may not have addressed sufficiently. In order to understand the Basel Accords better it is useful to review them individually in order to better compare and contrast the variations. The BCBS determined that bank capital would be organized into 2 separate tiers. Tier 1focuses on the higher-quality capital, those that represents items of the lowest priority of repayment and easiest to absorb when lost. Most of Tier 1 involves “core” capital, or common equity, which arises from actual ownership in the bank, like common stock, undivided profits, and surplus monies. Tier 2, also called supplementary capital, include certain reserves, and term debt. The capital under Tier 2 can be divided into 2 more sublevels; the upper focuses on maintaining characteristics of being continuous, like preferred capital, and equity. ...
Download paper


The researcher states that when banks are operating at optimum efficiencies they are essential to the growth of the modern economy, facilitating spending and investments, allowing homes to be purchased, and businesses to expand. …
Author : kertzmannlawren
Download 2

Related Essays

Financial Services
The paper tells that various regulatory bodies have recognised that the prevalent strategies of capital regulations of the banks in the United States as well as the European Union, on the basis of the Basel I and the Basel II Accords as a major reason contributing to the 2008 financial disaster. This can be substantiated from the fact that under the prevalent capital adequacy policies prior to the financial crisis, the least regulatory capital obligations of banks were inadequate. The low capital obligations imposed on the banks as per the Basel II in addition to certain standards linked to...
12 pages (3012 words) Essay
The Likely Impact of the Basel II Accord on Shipping Finance
The main purpose of the research is to present that the Basel Committee on Banking Supervision developed a set of rules in relation to the capital adequacy requirement for banks in 1988 known as Basel 1 which primarily targeted credit risk and which made it a requirement that banks “hold capital equal at least 8% of the risk-weighted assets”. Under the Basel I Accord “.the amount of capital being put aside by a bank as a type of ‘buffer’ for the risk taken was very simple and standardized.” However, the Basel Committee of Banking Supervision needing a more risk-sensitive approach...
43 pages (10793 words) Dissertation
A critical study of credit risk management in the first bank of Nigeria Plc.
Circumstances led to the situation in which the giant loss incurring banks due to subprime crisis have to solely depend on capital flow from Middle East, Chinese and investors from Singapore. Thus major nucleus of these losses has been related to credit risk. Thus the notion of the credit risk management is a grave concern in this world of complex financial milieu and it has become highly essential for the financial institutions to suppress loses arising from credit for sustained long run performance. The obnoxious cases of bank failures, acquisitions, consolidation have steered the focus of...
20 pages (5020 words) Dissertation
International aspects of business law
Increasingly international trade organizations such as the WTO and bilateral free-trade agreements such as those in place with the United States and E.U. can significantly shape and alter the economic environment in a way that financial planners must identify and manage for investment clients with advance preparation. The importance of international law to traders in this context of financial investment services and commodities trading particularly cannot be understated, as it is a direct aspect of risk management operations that form a part of due diligence in any overseas investment...
8 pages (2008 words) Coursework
A critical study of credit risk management in the First Bank of Nigeria PLC
All types of transactions have risk factors attached to them. If considered as an isolated case, then the loss can be treated as standalone. However, if a portfolio is considered like financial instruments and loans, there is the diversification effect which means risks of individual transactions get diluted. This is because every individual transaction cannot become a bad debt, and it is also not possible that all financial instruments of a trading book will end up as losses caused by market movements. It is universally accepted that the “sum of individual risks is less than the risk of the...
52 pages (13052 words) Dissertation
money and capital market
With reference to this, the paper will discuss about the challenges and issues associated with Basel II, which further led to the proposal of replacing it with Basel III. Discussion Basel Accords Basel Accords refer to a set of banking regulations issued by Basel Committee on Banking Supervision (BCBS). The association has developed three Basel accords till date, which comprise of Basel I, II and III. The first Basel accord was introduced in the year 1988. By the year 2008, Basel II came into existence and was readily accepted in various regions of the world. However, owing to certain facets,...
3 pages (753 words) Essay
Banking Regulation and Risks
The banks are now on a constant quest to out-wind the effects of the global financial crisis and encounter a new business era. The change in the regulatory framework of banks has been observed globally. The practices of the banks of increased regulatory requirement have are hindered the banks from progressing (Ernst & Young, 2011). Hence, this report aims to highlight the effect of the global financial crisis on the regulatory framework of the banks. It will signify the need for the banks to alter the global banking landscape. This has become mandatory so that the system can run smoothly and...
6 pages (1506 words) Coursework
Got a tricky question? Receive an answer from students like you! Try us!