Basel III Reforms – Introduction

Basel III reforms – Introduction

Introduction

Basel III reforms are changes that aim to improve banks’ ability to handle tough financial times, reducing the risk of economic problems spreading from the banking sector to the real economy. In 2009, the leaders of G20 countries agreed to make the regulatory system for banks and financial firms stronger, raise capital standards, stop risky compensation practices, improve the derivatives market, and make sure large global companies are accountable for the risks they take. The Basel Committee on Banking Supervision (BCBS) released the Basel III capital regulations in 2010.

Basel III reforms strengthen the rules for individual banks to make them more resilient during tough times. They also focus on reducing risks across the banking sector and over time. These regulations raise the quality and amount of capital that banks must have to handle losses, introduce a backstop for measuring risk, and set higher standards for how banks are supervised and must report their financial information. The regulations also include buffers to protect against excessive credit growth.

The Reserve Bank issued guidelines based on the Basel III reforms for banks operating in India on May 2, 2012. These guidelines were gradually implemented in India starting from April 1, 2013, and they will be fully implemented by March 31, 2018.

 The Reserve Bank has discontinued the use of Basel II regulations and now only follows Basel III.

Basel III reforms are changes made by the Basel Committee on Banking Supervision (BCBS) to improve the banking sector’s ability to handle tough financial times. These reforms aim to reduce the risk of economic problems spreading from the banking sector to the real economy. The G20 leaders agreed in 2009 to make the regulatory system for banks and financial firms stronger, and the Basel III capital regulations were released in 2010.

The reforms focus on two areas: strengthening the rules for individual banks and reducing risks across the banking sector. The rules for individual banks are called micro-prudential regulations and are designed to make banks more resilient during tough times. The reforms also focus on reducing risks across the banking sector, which are called macro-prudential regulations. These regulations aim to reduce the pro cyclical amplification of risks over time.

Basel III introduces several changes to the regulatory and supervisory standards that banks must follow. These include raising the quality and amount of capital that banks must hold to handle losses on both a going concern and a gone concern basis, introducing a leverage ratio as a backstop to the risk-based capital measure, and setting higher standards for how banks are supervised and must report their financial information.

The Basel III regulations also include buffers to protect against excessive credit growth. These buffers include the capital conservation buffer and the counter cyclical buffer. The capital conservation buffer requires banks to hold additional capital during good times so that they can use it to absorb losses during bad times. The counter cyclical buffer requires banks to hold additional capital during times of excessive credit growth to ensure that they have enough capital to handle losses during a downturn.

The Reserve Bank of India issued guidelines based on the Basel III reforms in May 2012. These guidelines were gradually implemented in India starting from April 1, 2013, and will be fully implemented by March 31, 2018. The Reserve Bank of India has discontinued the use of Basel II regulations and now only follows Basel III.

Introduction to Basel III

Simple Guide on Minimum Capital Requirements – Basel III

Elements of Regulatory Capital – Basel III

Capital Charge for Credit Risk – Basel III

Credit Risk Mitigation – Basel III

Capital Charge for Market Risk – Basel – III

Operational Risk Capital Charge Calculation Methods– Basel – III

Guidelines for Internal Capital Adequacy Assessment Process (ICAAP) – Basel III

Guidelines for the SREP of RBI and ICAAP of AIFIs– Basel – III

Operational Aspects of ICAAP – Basel III

Leverage Ratio Framework – Basel III

Large Exposures Framework – Basel III

Permitted exposures & other prudential exposure limits – Basel III

Significant Investments of AIFIs – Basel III

Prudential Norms for Investment Portfolio Management by AIFIs – Basel III

Accounting and Provisioning in AIFIs – Basel III

Resource Raising Norms – Basel III

Exemptions, Interpretations and Repeal – Basel III