Basel Accords Group: Flávio Guimaraes Pierobon Shirokova Ekaterina Hochschule Pforzheim University 2011
Basel Accords • Basel I (1988) – Minimal requirements (focus on credit risk) • Basel II (2004) – 3 main pillars • Basel III (2010) – Response to the Global Financial Crisis
Basel I • The Herstatt Bank Liquidation (1974) • Enforced by the G-10 • Basel Comittee on Banking Supervision • Basel II - Established on 1988 • Sets a Minimal Capital Requirement for Banks • Outdated to the financial market
Basel II: Pillars • Minimun Capital Requirements • Supervisory review • Market Discipline
Minimum Capital Requirements • Credit Risk – Standardized Approach • External Credit-Rating Agencies – «Internal ratings-based» (IRB) approach • Individual bank`s methodics
Minimum Capital Requirements • Operational Risk – Standardized Approach • External Credit Rating Agencies – Basic Indicator Approach • (Average of the last three years gross income) x 0. 15 – Advanced Measurement Approach (AMA) • Own Empirical Model • Section 664 of Basel II – sets specific requirements
AMA Minimal Requirements • Directors & Senior Managers actively involved • Solid Operational Risk Management System… – … and implemented with integrity • Sufficient Resources
Minimum Capital Requirements • Market Risk – Value at Risk (Va. R)
Supervisory review • Involves a Framework – Objective: dealing with other kinds of risk • Gives the Opportunity to Review the AMA
Market Discipline (Expanded Disclosure) • Transparency • Share of Information • Disclose Details • Consequence: – Risk-Awareness in the Market
IT-Infrustructure • Collection of information • Integration of Information • IT security
Basel III • Response to the 2008 Financial Crisis • Requirements: – Hold 4, 5% of Common Equity – Hold 6% of Tier Capital – 2, 5% Capital Compulsory Retain • Additional 2, 5% Capital at high Credit-Growth Periods
Thank you for attention!
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