Question

Explain what are the two concern areas and the reform measure under the Basel III reform package to reflect a bank as strong and have a global capital standard.

Answer in 5 paragraphs with examples. thanks

Answer 1

Two concern areas and reform measure under Basel III reform package are as follows-

A. Standardized approach to credit risk- there has been a revision in the risk weighting of various assets, according to these measures and there has been a focus upon the improvement of the capital adequacy ratio of the bank and there has been a continuous updation of various assets by continuously weighting risk in synchronisation with the macro environment

B. Revised operational risk framework - there has been a revised operational risk framework which has been Put in place in order to deal with various kinds of operational risk which is rising in day-to-day business of the bank and which is of the operating nature so it is trying to secure the the operational activities of the bank and minimise the impact of risk.

Risk weighted assets are formulating one of the most important prospect of the banking business and it is always impacting the overall stability of the businesses in the long run and these frameworks are trying to improve the performance of the banking business in long term by improving the quality of assets which has been held in the books of accounts and it is also continuously monitoring the level of risk adjustment.

this framework has been in continuation with its predecessor and it is trying to improve upon the predecessor and synchronising the risk rating of various assets in order of their exposure to the macro environment.

For example, various types of liquid assets have a very lower risk weighting like cash and other liquid assets but when we are moving towards real estate assets that they will be having a higher risk.