role of the bank for international bis in developing norms in banking sector

8/6/2019 Role of the Bank for International bis in Developing Norms in Banking Sector

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Role of the Bank for

International

Settlements(BIS) indeveloping norms in

banking sector


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Bank for international Settlements - Introduction

The Bank for International Settlements (BIS) isan intergovernmental organization of centralbanks which "fosters international monetary and

financial cooperation and serves as a bank for centralbanks."

It is not accountable to any national government. TheBIS carries out its work through subcommittees, thesecretariats it hosts, and through its annual General

Meeting of all members. It also provides bankingservices, but only to central banks, or to internationalorganizations like itself.


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The head office is in Basel, Switzerland and there are two

representative offices:-

1) Hong Kong Special Administrative Region of the People's Republic

of China

2) Mexico City.

Established on 17 May 1930, the BIS is the world's oldest

international financial organisation.

As its customers are central banks and international organisations,the BIS does not accept deposits from, or provide financial services

to, private individuals or corporate entities.


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Key Objectives of BIS

Promoting monetary and financial stability

Bimonthly meetings of the Governors and other senior officials of the BISmember central banks to discuss monetary and financial matters areinstrumental in pursuing this goal. The standing committees located at the

BIS support central banks, and authorities in charge of financial stabilitymore generally, by providing background analysis and policyrecommendations.

The committees are:

Basel Committee on Banking Supervision

Committee on the Global Financial SystemCommittee on Payment and Settlement Systems

Markets Committee

Irving Fisher Committee on Central Bank Statistics


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Goal of BIS

A "well-designed financial safety net, supported by strong prudential

regulation and supervision, effective laws that are enforced, and sound

accounting and disclosure regimes," are among the Bank's goals.

Two aspects of monetary policy have proven to be particularly sensitive, and

the BIS therefore has two specific goals:

1) To regulate capital adequacy and

2) To make reserve requirements transparent.


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Products & Services Offered

The BIS has developed a range of banking servicesspecifically designed to assist central banks, monetaryauthorities and international financial institutions in themanagement of their foreign exchange and gold reserves.

PRODUCTS OFFERED

BIS money market instruments

BIS tradable instruments

SERVICES OFFERED

Foreign exchange and gold services

Asset management services

Other services


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BIS Activities

A meeting place for central banks

Research and statistics

Seminars and workshops

Banking services for central banks


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BASEL III Norms

BASEL III is a new global regulatory standard on bank capital adequacy and liquidity

agreed by the members of the Basel Committee on Banking Supervision.The third of

the Basel Accords was developed in a response to the deficiencies in financial regulation

revealed by the global financial crisis.

These measures aim to:

- Improve the banking sector's ability to absorb shocks arising from financial and

economic stress, whatever the source

- Improve risk management and governance

-Strengthen banks' transparency and disclosures.

The proposed changes are to be phased in gradually, starting in January 2013 to January

2015, while the creation of a conservation buffer could be set up by banks during the

period January 2016 to 2019.


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Overview

According to Basel III norms, banks will require to :

- hold 4.5% of common equity (up from 2% in Basel II) and 6%

of Tier I capital (up from 4% in Basel II) of risk-weighted assets

(RWA).

It also introduces additional buffers as follows :

(i) a mandatory capital conservation buffer of 2.5% and

(ii) a discretionary countercyclical buffer, which allows nationalregulators to require up to another 2.5% of capital during

periods of high credit growth.


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In addition, Basel III introduces a minimum 3% leverage ratio and

two required liquidity ratios :

The Liquidity Coverage Ratio - requires a bank to hold sufficient

high-quality liquid assets to cover its total net cash flows over 30

days.

Net Stable Funding Ratio - requires the available amount of

stable funding to exceed the required amount of stable funding

over a one-year period of extended stress.


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Impact ofProposed norms

Impact on individual banks :

- Weaker banks crowded out

- Significant pressure on profitability and ROE

- Change in demand from short-term to long-term funding

Impact on the financial system

- Reduced risk of a systemic banking crisis

- Reduced lending capacity

- Reduced investor appetite for bank debt and equity


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To achieve the goals of developing these norms, the Basel III proposals

are broken down into three parts on the basis of the main areas they

address:

Capital reform (including quality and quantity of capital,complete risk coverage, leverage ratio and the introduction

of capital conservation buffers, and a counter-cyclical

capital buffer)

Liquidity reform (short-term and long-term ratios)

Other elements relating to general improvements to the

stability of the financial system.


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BASEL III

Capital Reform Liquidity Standards Systemic risk and

interconnectedness

Quality, consistency, and

transparency of capital

base

Capturing of all risks

Controlling leverage

Buffers

Short-term: Liquidity

Coverage Ratio (LCR)

Long-term: NetStable Funding Ratio

(NSFR)

Capital incentives for

using CCPs for OTC

Higher capital forsystemic

derivatives

Higher capital for inter-

financial

exposures

Contingent capital

Capital surcharge for

systemic banks


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Conclusion

The Basel III framework introduces a paradigm shift in capital

and liquidity standards, which was constructed and agreed to

in relatively record time.

Many elements, however, remain unfinished, and even the final

implementation date looks a long way off. However, market

pressure and competitor pressure is already driving considerable

change at a range of organizations.

Firms should ensure they are engaging with Basel III as soon as

possible to position themselves competitively in the new post-

crisis financial risk and regulatory landscape.


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THANK YOU !!

role of the bank for international bis in developing norms in banking sector

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