BASEL Norms| CAR| Basel i, Basel ii & Basel iii | Learn in less than 10 min

Summary

The video discusses the history and importance of banking, focusing on the role of the Basel Committee on Banking Supervision. It delves into topics like capital adequacy, liquidity coverage, and net stable funding ratios, emphasizing the need for banks to maintain sufficient capital and liquidity to ensure financial stability.

Takeaways

• 🏦 The script discusses the history of banking and the establishment of the Basel Committee on Banking Supervision in 1974, highlighting its importance in setting banking standards.
• 📈 It emphasizes the concept of capital adequacy, explaining how banks must maintain a certain level of capital to cover potential losses and ensure financial stability.
• 📊 The importance of liquidity is stressed, with the script detailing the Basel III standards and the need for banks to have sufficient liquid assets to meet short-term obligations.
• 🏢 The script mentions the role of the supervisory review process in ensuring that banks have effective risk management practices in place.
• 💡 It touches on the topic of leverage, explaining how high levels can pose risks to banks and the financial system, and the measures taken to control it.
• 📝 The script provides insights into the types of capital that banks are required to hold, distinguishing between common equity and other forms of capital.
• 🔢 It discusses the calculation of capital ratios, including the Tier 1 capital ratio, and the implications of these ratios for bank operations and stability.
• 🏛 The role of regulatory authorities in enforcing banking standards and the consequences for banks that fail to comply are outlined.
• 🌐 The script highlights the international nature of banking and the need for global cooperation in setting and enforcing banking standards.
• 🏚️ It discusses the impact of the financial crisis on banking regulations, particularly the introduction of new capital and liquidity requirements post-crisis.
• 📈 The script also covers the topic of derivatives and the risks associated with their trading, as well as the regulatory measures in place to mitigate these risks.

Q & A

What is the main topic discussed in the video?

The main topic discussed in the video is banking, focusing on a very important topic, and the script mentions the history of banking, the establishment of the Basel Committee on Banking Supervision, and the importance of capital adequacy ratios.

What was the purpose of establishing the Basel Committee on Banking Supervision?

The Basel Committee on Banking Supervision was established to set up a framework for international banking regulations, ensuring the stability and integrity of the global financial system.

What does the term 'Basel I' refer to in the context of the video?

1988 guidelines of the Basel Committee on Banking Supervision, which focused on the minimum capital requirements for banks.

What is the significance of 'Tier-1 capital' in banking?

Tier-1 capital is a measure of a bank's financial strength and is the core capital that includes common equity and disclosed reserves, which is crucial for absorbing losses without the bank becoming insolvent.

What is the role of 'Tier-2 capital' in a bank's capital structure?

Tier-2 capital includes subordinated debt and other instruments that can absorb losses if the bank faces financial stress, supplementing the bank's capital base and providing a buffer against potential losses.

What does the term 'leverage ratio' refer to in the video?

The leverage ratio in the video refers to a measure of a bank's assets in relation to its equity, indicating the degree of leverage employed by the bank and a key indicator of its financial stability.

How does the script mention the importance of liquidity in banking?

The script mentions liquidity in the context of liquidity coverage ratios and net stable funding ratios, emphasizing the need for banks to maintain sufficient liquid assets to meet short-term obligations and long-term structural funding needs.

What is the significance of the 'risk-weighted assets' mentioned in the video?

Risk-weighted assets are assets that are assigned weights based on their risk profile, and they are used to calculate the capital a bank needs to hold against potential losses, ensuring that the bank is adequately capitalized to cover the risks it takes.

What does the term 'Common Equity Tier 1 (CET1)' represent in the video?

Common Equity Tier 1 (CET1) represents the highest quality of capital that a bank can hold, consisting of common shares and retained earnings, and it is the primary measure of a bank's financial strength.

How does the video script discuss the impact of the financial crisis on banks' capital adequacy?

The script discusses the impact of the financial crisis by mentioning how banks faced challenges in maintaining their capital adequacy ratios, leading to regulatory changes and increased focus on capital conservation and countercyclical buffers.

What is the role of 'countercyclical capital buffers' in the banking system as discussed in the video?

Countercyclical capital buffers are additional capital that banks are required to hold during periods of high credit growth to protect against the risk of future downturns, helping to smooth the financial cycle and prevent excessive risk-taking.