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About the BISEstablished on 17 May

1930The BIS is the world’s

oldest international financial organization

Head office is in Basel, Switzerland and representative offices in Hong Kong SAR and in Mexico City.

The BIS currently employs around 550 staff from 50 countries.

List of Member Central Banks

Basel committee on Banking Supervision – (BCBS)A set of agreementsRegulations and recommendations on Credit

risk , market risk and operational riskPurpose – to have enough capital on account

to meet obligations and absorb unexpected losses

BASEL 1In 1988, the Basel Committee(BCBS) in

Basel, Switzerland, published a set of minimal capital requirements for banks, known as 1988 BaselAccord or Basel 1.

Primary focus on credit riskAssets of banks were classified and grouped

in five categories to credit risk weights of zero ‘0’, 10, 20, 50 and up to 100%.

Assets like cash and coins usually have zero risk weight, while unsecured loans might have a risk weight of 100%.

Capital Adequacy Ratio (CAR)

Expressed as a percentage of a bank's risk weighted credit exposures.

Also known as "Capital to Risk Weighted Assets Ratio (CRAR).

Ratio is used to protect depositors and promote the stability and efficiency of financial systems around the world.

Purpose of Basel 11. Strengthen the stability of international

banking system.

2. Set up a fair and a consistent international banking system in order to decrease competitive inequality among international banks

Achievement :to set up a minimum risk-based capital

adequacy applying to all banks and governments in the world

Basel Norms & Indian Banking System

Basel Accord I. was established in 1988 and was implemented by 1992 in India.

over 3 years – banks with branches abroad were required to comply fully by end March 1994 and the other banks were required to comply by end March 1996.

RBI norms on capital adequacy at 9% are more stringent than Basel Committee stipulation of 8%.

Commercial Banks , Cooperative Banks and Reginal rural banks banks have different RBI guidelines

Pitfalls of Basel ILimited differentiation of credit risk

(0%, 20%, 50% and 100%)Static measure of default risk

The assumption that a minimum 8% capital ratio is sufficient to protect banks from failure does not take into account the changing nature of default risk.

No recognition of term-structure of credit risk The capital charges are set at the same level regardless of the maturity of a credit exposure.

Simplified calculation of potential future counterparty riskThe current capital requirements ignore the different level of risks associated with different currencies and macroeconomic risk. In other words, it assumes a common market to all actors, which is not true in reality.

Lack of recognition of portfolio diversification effectsIn reality, the sum of individual risk exposures is not the same as the risk reduction through portfolio diversification. Therefore, summing all risks might provide incorrect judgment of risk

ConclusionBasel 1- Milestone in Finance and Banking

HistoryIt launched the trend toward increasing risk

modeling researchHowever, its over-simplified calculations, and

classifications have simultaneously called for its disappearance, paving the way for the Basel II Capital Accord

It led to further agreements as the symbol of the continuous refinement of risk and capital

Thank You…