Bank Regulation and Supervision Flashcards
(18 cards)
Basel 1
set of international banking regulations that set minimal capital requirements with a goal of minimising risk
two adequacy requirements under Basel 1
asset-to-capital ratio has to below 20
required capital = 8%
why was risk weighted assets introduced
to account for credit risk exposure assigning different risk weights to different assets
weight of cash and government bonds under Basel 1
0%
weight of claims and government bonds under Basel 1
20%
weight of uninsured residential mortgages and transactions with corporations under Basel 1
50%
weight of less developed countries debt and claims on none OECD
100%
Basel 1 1998 amendment
required banks to measure and hold capital rusk for market risk on all instruments including those off balance sheet
If counterparty defaults today and V is positive
derivatives contract is an asset to the bank and liable to lose V
If counterparty defaults today and V is negative
contract an asset for counterparty and neither gain or loss to bank
what does add on term allow for
possibility that risk exposure may increase in the future
netting
offsetting value of multiple positions or payments due to be changed between two or more parts
net replacement ratio
exposure with netting/exposure without netting
Basel 2 (2007)
more refined approach to regulating capital adequacy
two approaches for calculating credit risk
standardised approach and internal ratings based approach
Basel 3 (2009)
Introduction of two liquidity requirements which are designed to ensure that banks can survive liquidity pressures in the short run
net stable funding ratio
focuses on liquidity management over a period of one year
liquidity coverage ratio (LCR)
focuses on banks ability to survive a 30-day period of liquidity disruptions
