...BANKING SECTOR REFORMS IN INDIA . Introduction: Financial sector reforms introduced in the early 1990s as a part of the structural reforms have touched upon almost all aspects of banking operation. For a few decades preceding the onset of banking and financial sector reforms in India, banks operated in an environment that was heavily regulated and characterized by sufficient barriers to entry which protected them against too much competition. The banking reform package was based on the recommendation proposed by Narsimhan Committee report (1992) that advocated a move to a more market oriented banking system, which could operate in an environment of prudential regulation and transparent accounting. One of the primary motives behind this drive was to introduce an element of market discipline into the regulatory process that would reinforce the supervisory effort of the reserve bank of India(RBI). Market discipline, especially in the financial liberalization phase, reinforces regulatory and supervisory efforts and provides a strong incentive to banks to conduct their business in a prudent and efficient manner and to maintain adequate capital as a cushion against risk exposures. The administered interest rate structure, both on the liability and the assets side, allowed banks to earn reasonable spread without much efforts. Although banks operated under regulatory constraints in the form of statutory holding of government securities and the cash reserve ratio (CRR) and...
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...BANKING REFORMS IN NIGERIA AND ITS IMPLICATION FOR ECONOMIC DEVELOPMENT A CASE STUDY OF ZENITH BANK PLC CHAPTER ONE INTRODUCTION 1.1 Background of the Study For more than two decades after independence, the Nigerian financial system was repressed, as evidenced by ceilings on interest rates and credit expansion, selective credit policies, high reserve requirements, and restriction on entry into the banking industry. This situation inhibited the functioning of the financial system and especially constrained its ability to mobilize savings and facilitate productive investment. In Nigeria, we have eighty-nine banks many of which have a capital base of less than US$ 10 million. This section will set out some of the factors that necessitated the need for major banking sector reforms. Through financial intermediation, banks are supposed to facilitate capital formation and promote economic growth by operating in a safe and sound manner. In the past, some financial institutions showed glaring inability to maintain an efficient flow of funds within the economic system. The sharp practices of some Banks together with the unsoundness of others led to a wide spread of financial sector distress and losses to depositors. It has been seen as a paradox that despite the size of the economy, the country’s reserves are still deposited in foreign Banks due to the low capacity of the local Banks. The sector has been highly concentrated structurally as the ten largest Banks account for...
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...tried to end the civil war by uniting all conflicting political parties through the historically first free and fair election in Cambodia, which was prepared by the United Nations. Cambodia has deficit every year and survives by foreign aid and donations both financially and technically. In response to that, donating countries and international communities introduce good governance to Cambodia, which leads to administrational and institutional reforms. In this project, I am going to talk roughly about public administration reform, and more deeply about bank restructuring programs which play crucial rules in development of the economy of this poor country. After transforming from planning economy to free market economy, public administrational and institutional reform is one of the transforming processes. The government has tried its best to reduce excessive public employees by eliminating ghost employees, creating job descriptions and decentralizing local authorities. In bank restructuring programs, the government transformed one-tier banking system...
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...ICB Independent Commission on Banking Final Report Recommendations September 2011 ICB Independent Commission on Banking Final Report Recommendations September 2011 Official versions of this document are printed on 100% recycled paper. When you have finished with it please recycle it again. If using an electronic version of the document, please consider the environment and only print the pages which you need and recycle them when you have finished. © Crown copyright 2011 You may re-use this information (excluding logos) free of charge in any format or medium, under the terms of the Open Government Licence. To view this licence, visit www.nationalarchives.gov.uk/doc/open-governmentlicence/ or e-mail: psi@nationalarchives.gsi.gov.uk. Where we have identified any third party copyright information you will need to obtain permission from the copyright holders concerned. Any enquiries regarding this publication should be sent to: Independent Commission on Banking Victoria House Southampton Row London WC1B 4AD This document is also available from our website at http://bankingcommission.independent.gov.uk/ ISBN 978-1-845-32-829-0 Produced by the Domarn Group, London. Final Report Contents Contents ...................................................................................................................... 1 List of acronyms .........................................................................................
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... Accounting Department Osun State University, Okuku Campus, Osun State. Nigeria, Africa CURRENT BANK CRISIS AND CBN’s INTERVENTIONS In June 2009, Nigerian Central Bank Governor Sanusi Lamido Sanusi took office. He certainly had an intuitive feeling about how deeply distressed his nation's banking sector was. Foreign risk management analysts had been issuing warnings about Nigerian banks and their toxic assets since January, 2009 and oil prices were down — always a harbinger of hard times coming for Africa's top oil producer. The current bank crisis emanated from greed and destructive capitalism of infinitesimal populace orchestrated by unguided bank reform of the then CBN Governor, Professor Charle Soludo. This position is succinctly narrated by the analysts and scholars as follows: According to Nigerian business journalist, Dayo Coker(2010): “It was simply greed and destructive capitalism.” He continued: “There was a chance to make millions and people seized it. The regulators failed the people.” Long before they failed the people, however, Nigeria's regulators inspired them with a plan to overhaul their convoluted banking system, and open Nigerian finance to the world. In 2005, then-Central Bank Governor Chukwuma Soludo whittled down Nigeria's 89 small-scale banks to a handy 25. The new banks born of Soludo's consolidation were bigger, broader in scope and had much more credit to lend — but fewer checks on how to lend it. That's where the...
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...CAPITAL ADEQUACY FRAMEWORK AND RISK MANAGEMENT IN BANKS GUEST LECTURE: MR. R M PATTANAIK EX GM- INDIAN OVERSEAS BANK CAPITAL ADEQUACY RATIO (CAR) Also known as Capital to Risk (Weighted) Assets Ratio (CRAR) is the ratio of a bank’s capital to its risk. National regulators track a bank's CAR to ensure that it can absorb a reasonable amount of loss and complies with statutory capital requirements. It is a measure of a bank's capital. It is expressed as a percentage of a bank's risk weighted credit exposures. This ratio is used to protect depositors and promote the stability and efficiency of financial systems around the world. Two types of capital are measured: tier one capital, which can absorb losses without a bank being required to cease trading, and tier two capital, which can absorb losses in the event of a winding-up and so provides a lesser degree of protection to depositors. CAR= Capital funds/ Total risk weighted assets (TRWA) WHAT IS RISK? Risk is the possibility of suffering a loss which is UNEXPECTED, UNFORSEEN and UNCERTAIN. Expected losses can be managed and covered by “Provisions” like Loan loss or NPA provisions, Provision for depreciation and investments etc. However, unexpected losses can be taken care by maintaining adequate capital. The capital acts as cushion or shock absorber for the bank in times of unforeseen losses. RISK MANAGEMENT Whatever activities you undertake there is a certain degree of risk associated with it. This risk however...
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...III Difference 8 3.3. Implications of Basel III 9 3.4.4. Global Banking System 9 3.4.5. Banking System in Australia 9 3.4.6. Banking System in Japan 10 3. Conclusions 11 4. Reference List 12 1. Introduction The financial system is beyond indispensable in the global economy, with commercial banks playing a vital role as the main form of a financial institution. Within the financial system it is crucial to have regulations and guidelines for financial institutions such as commercial banks to abide by and have the expectation that a minimum standard is to be consistently expected. Prescribing prudential standards for supervision of the banking sector is a necessity in increasing reliance and resilience with confidence in the banking sector, which is why the Basel Committee on Banking Supervision has introduced Basel III in 2013. This report focuses on...
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... In Canada recession was less severe and they face no banking failure due to the size and diversification in their large institution has maintained their stability. New Entrant was limited by Canadian government and I exchange chartered bank with provide them financial stability, in Canada focuses on banking sector that’s why brokers dealers and security market remain much at smaller .The banking system of branch was oliogiopolisty that imply the system which has limited supply of banking services and cost as compared to their competitors . In our previous work (Bordo et al., 1994) we analyzed that the Canadian banking is not categorized in higher cost as compared to US. The banking of Canada same returns on equity and largely used MMMFSs After 1987 they became a vital part of Canada banking, at that time government had given them permission to create MMMFs and half of total MMMFs are kept at bank which means that they are within the banking system. According to (Byung kyong & Niamh Sheridan,2012) Canada’s three large bank weighted average is two an half time smaller than Australia’s four major banks however non performing rate of housing loans in Australia and Canada are almost same in recent years. The mortgages in Canada are provided by Canada mortgage and Housing Corporation own by Government are assigned at weight of zero risk, therefore the lowest risk of residential mortgages of four large Canadian banking is almost 70% in comparison with 40% of major Australian...
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...instances referring to indigenous money lenders, Sahukars and Zamindars involved in the business of money lending by mortgaging the landed property of the borrowers. Towards the beginning of the twentieth century, with the onset of modern industry in the country, the need for government regulated banking system was felt. The British government began to pay attention towards the need for an organised banking sector in the country and Reserve Bank of India was set up to regulate the formal banking sector in the country. But the growth of modern banking remained slow mainly due to lack of surplus capital in the Indian economic system at that point of time. Modern banking institutions came up only in big cities and industrial centres. The rural areas, representing vast majority of Indian society, remained dependent on the indigenous money lenders for their credit needs. source: http://www.competitionmaster.com/ArticleDetail.aspx?ID=41e9ef66-3271-418d-b344-09f76d6f59a1 Independence of the country heralded a new era in the growth of modern banking. Many new commercial banks came up in various parts of the country. As the modern banking network grew, the government began to realise that the banking sector was catering only to the needs of the well-to-do and the capitalists. The interests of the poorer sections as well as those of the common man were being ignored. In 1969, Indian government took a historic decision to nationalise 14 biggest private commercial banks. A few more were...
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...BASEL III NORMS AND INDIAN BANKING: ASSESSMENT AND EMERGING CHALLENGES C.S.Balasubramaniam Professor, Babasaheb Gawde Institute of Management Studies, Mumbai Email: balacs2001@yahoo.co.in ABSTRACT Banking operations worldwide have undergone phenomenal changes in the last two decades since 1990s. Financial liberalization and technological innovations have created new and complex financial instruments/products have increased their role and turnover in financial markets and have rendered banking operations vulnerable to a variety of risks. The financial crisis episodes surfaced since 2006 have highlighted this paradox to a number of central banks operating in different countries and RBI and Indian banking sector is no exception to this phenomenon. Basel framework has been drawn by Bank for International Settlements (BIS) in consultation with supervisory authorities of banking sector in fifteen emerging market countries with the basic objective of advocating codes of bank supervision and promoting financial stability amidst economic crises. This research paper is divided in three parts .The opening part attempts to briefly describe the changes in the banking scenario since 1991 reforms and the necessity of introducing Basel III to the Indian Banking sector. Part II presents the Basel standards framework and explains why the transition from Basel II to Basel III norms has become necessary to bring in measures and safety standards which would equip the banks to become more resilient...
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...Basel III Basel III overview Concepts of Basel III 1/25/2016 Lessons of Financial Crisis – • Insufficient common equity, • Hybrid capital (Tier 2 and Tier 3) not sufficiently loss absorbent, • Insufficient capital buffers above minimum, • Inadequate risk capture (Securitizations, Trading and derivatives activities, Counterparty credit risk), • No constraint on leverage, • No recognition of greater risk posed by systemically important banks, • Insufficient liquidity and vulnerable structural liquidity profiles, • Weak governance resulting in poor underwriting and risk management, • Risk management/supervision overly focused at institutional level • Systemic risks: procyclicality and interconnectedness After the financial crisis, the Basel Committee has revised Basel II; Basel III introduced: Strengthening the global capital framework; Capital conservation buffer ; Countercyclical buffer. Leverage ratio; Global liquidity standard; Capital ● Pillar 1 Capital: Quality and level of capital (Going Concern Capital, Gone concern capital), Capital conservation buffer, Risk coverage: Securitizations, Trading book, Counterparty credit risk Containing leverage: Leverage ratio ● Pillar 2 Risk management and supervision: Supplemental Pillar 2 requirements. ● Pillar 3 Market discipline: Revised Pillar 3 disclosures requirements New Definition of Capital According to Basel III, bank capital will be divided into...
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...system commonly referred to as the Basel Capital Accord. This system provided for the implementation of a credit risk measurement framework with a minimum capital requirement of 8% on banks Risk Weighted Assets (RWA). The 1988 framework is also known as "Basel – I". Since 1988, this framework has been progressively introduced not only in member countries but also virtually in all other countries. The "international convergence on capital measurement and capital standard -2004" is popularly known as Basel-II. It is a capital adequacy related standard framed by Basel committee. After the successful implementation of 1988 accord in more than 100 countries, the Basel Committee on Banking Supervision reached an agreement on a number of important issues for promoting best and uniform banking practices as well as setting standards and guidelines for supervisory function. Following extensive interaction with banks, industry groups and supervisory authorities that are not members of the Committee, the revised framework was issued on 26 June 2004, which is being regularly revised and updated. The Basel-II aims to replace Basel I and to make the capital framework more risk sensitive. Basel II has recommended major revision on the international standard on bank's capital adequacy, which requires banks to implement risk management policies that closely align banks capital with its economic capital. The Basel II has been introduced basically...
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...Liquidity Requirements For Basel III The Basel Committee was birthed to aid the banking sector’s ability to deal with the impact of the changing financial environment. The committee hopes to improve risk management through times of financial and economic stress. These goals are executed through creating criteria for each bank to follow to regulate and improve management. The Basel Committee has outlined the regulations through a set of reform measures. The first version was released in 2009 and labeled Basel I, the second publication was labeled Basel II and released in 2010. Currently the efforts of the Basel Committee are outlined in Basel III, which aims to strengthen banks’ transparency through requirements of proper leverage ratios and capital requirements. The Basel Accords are built upon one another to better improve requirements. It directs banks that hold riskier assets to have more cushion to absorb the risk known as capital on hand so the portfolio is safer should a financial change occur. This is regulated by the publication made in the notes of the balance sheet. Banks must also maintain higher common equity including capital cushioning of 2.5% of assets. Liquidity requirements of Basel III are outlined in the Liquidity Coverage Ratio (LCR). It promotes short-term resilience of the bank’s liquidity risk profile. The bank must hold stock of high quality liquid assets (HQLA) that can easily be converted to cash in private markets to meet liquidity...
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...As an aftermath of the 2007-12 global financial crisis the International community unanimously opted to protect the global financial system through preventing the failures of SIFIs. The Basel Committee on Banking Supervision introduced new regulations (known as Basel III) that also specifically target SIFIs. The main focus of the regulations is to increase bank capital requirements and to introduce capital surcharges for systemically important banks. However, some economists have warned that the tighter Basel III capital regulation, which is primarily based on risk-weighted assets, may further negatively affect the stability of the financial system. Adding to the already intense regulations in the banking sector, the Federal Reserve intends to impose new stricter norms on the U.S. banking giants. On Tuesday, Fed Governor Daniel K. Tarullo released a statement, giving an update on the Fed's advancement towards the Dodd-Frank Act that started over four years back and outlined some important forthcoming "regulatory and supervisory priorities" to act upon the concerns arising from the "too big to fail" banks and systemic risk. The testimony was prepared for a hearing before the Committee on Banking, Housing, and Urban Affairs, U.S. Senate. Of the 29 global systemically important banks ('GSIBs') identified by the Financial Stability Board ('FSB'), there are 8 U.S. banks - The Goldman Sachs Group, Inc. ( GS ), Citigroup Inc. ( C ), Bank of America Corp. ( BAC ), Wells Fargo &...
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...ROLE OF CAPITAL IN SECURING A STRONG BANKING SYSTEM – THE IMPERATIVES OF BASEL III ACCORD Dr.T.V.Rao, M.Com.,Ph.D., CAIIB,ACIBS(UK), Professor, B.V.Raju Insitute of Technology, Narasapur, Medak Dt., Telangana State ABSTRACT: The stability of the Financial System largely depends on the strength and resilience of the Banking System. Indian Banks which suffered from negative capital adequacy, negative earnings and high NPAs in the Seventies and eighties are now on a robust footing thanks to the reforms brought about by the Narasimham Committee I and II and on account of the strong resolve of the Govt. and the Reserve Bank of India. It is a matter of pride that the Indian Banks have now become fully Basel II Compliant, and that they remained relatively unscathed in the face of the Global Financial Crises which lead to severe crisis of confidence among all stake holders. Basel Committee on Banking Supervision revisited their earlier initiatives in the form of Basel I and Basel II Capital Accords and has now come out with a revised Frame work in the form of Basel III Capital Accord to ensure that the Banks remain strong and resilient and withstand the shocks of economic upheavals. The Accord recommends very stringent measures in terms of provision of capital not only for the Credit, Market and Operational Risks but also to guard against cyclical fluctuations in the economic activities. The concept of loss absorbing capital has further been extended taking away the flexibility...
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