35 years: Debt capital markets
Tim outlines the changes that have been made to capital requirements for the financial institutions, starting with the publication of the Basel Capital Accord in 1988.
Tim outlines the changes that have been made to capital requirements for the financial institutions, starting with the publication of the Basel Capital Accord in 1988.
Subscribe to watch
Access this and all of the content on our platform by signing up for a 14-day free trial.
18 mins 5 secs
Several iterations of bank capital standards have been published in recent decades under the guidance of the Basel Committee on Banking Supervision (established under the auspices of the Bank for International Settlements). Starting with what has come to be known as Basel I, these standards have introduced ever-more sophisticated and detailed rules designed to ensure banks hold sufficient high-quality capital and liquid assets and retain access to funding in a crisis.
Key learning objectives:
Describe the basis of the Basel I capital standard
Identify how Basel II furthered the work of Basel I
Learn the new elements that Basel III introduced
Recognise the additional elements that Basel IV introduced
Access this and all of the content on our platform by signing up for a 14-day free trial.
Basel II set out three broad areas or ‘pillars’ of risk supervision and control:
Basel II also defined ‘operational risk’ (“the risk of loss resulting from inadequate or failed internal processes, people and systems or from external events”), and distinguished this from the riskiness of an asset measured by simple weightings. This version of the accord introduced the idea of the riskiness of assets and how much a bank might lose if assets went bad. Two calculations were adopted to quantify these two components: ‘Probability of Default’ (PD) and ‘Loss Given Default’ (LGD).
Banks were given a choice in how to calculate their risk-weighted assets:
Regulators continue to tweak capital weightings and adjust or fine-tune aspects of the Basel framework. The latest version, informally referred to as Basel IV, was published in December 2017. It further increases capital requirements by setting higher minimum levels through higher risk-weightings. In particular, it sets a higher ‘standardised floor’ so that capital requirements will always be at least 72.5% of the requirement under the Standardised Approach. The changes tighten Basel III’s leverage requirements.
Two important further changes were instigated:
Access this and all of the content on our platform by signing up for a 14-day free trial.
There are no available videos from "Tim Skeet"