4. Systematically Important Financial Institutions (SIFI): As a part of macro –
prudential framework, systematically important banks will be expected to have
loss-absorbing capability beyond the BASEL III requirements. Options for
implementation include capital surcharges, contingent capital and bail-in-debt.
Comparison of Capital Requirements under BASEL II and BASEL III
Requirements
Under BASEL II
Under BASEL III
Minimum Ratio of Total Capital to RWAs
8%
10.50%
Minimum Ratio of Common Equity to RWAs
2%
4.50% to 7.00%
Tier I Capital to RWAs
4%
6 %
Core Tier I Capital to RWAs
2%
5%
Capital Conservation Buffers to RWAs
None
2.50%
Leverage Ratio
None
3%
Counter Cyclical Buffer
None
2.50%
Minimum Liquidity Coverage Ratio
None
To Be Decided by
2015
Minimum Net Stable Funding Ratio
None
To Be Decided by
2018
Conclusion:
Although guidelines under BASEL II were enough to secure the working of banks during
normal course of business but when events like economic recessions emerged, it proved
that there are certain loopholes in the guidelines issued for the smooth working of banks.
To overcome these loopholes and to secure the banks from any further failure in the case
of return of such economic crisis period, BASEL III guidelines were issued. These
guidelines, however not implemented fully, will pave the way for efficient and smooth
functioning of banks.
References:
1. IIBF, “Risk Management”, IInd Ed., Mc Millan India Ltd, New Delhi, 2009.
2.
www.allbankingsolutions.com
3.
www.iibf.org.in
4.
www.rbi.org.in
5.
www.iba.org.in
6. Peter King and Heath Tarbert, “BASEL III: An Overview”
,
Banking &
Financial Services, Policy Reports, Vol 30, No. 5, May 2011, pp 1
7. Basel Committee on Banking Supervision, Bank for International Settlements,
strengthening the Resilience of the Banking Sector: Consultative Document 13
(2009) available at http://www.bis.org/publ/bcbs164.pdf.
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