...bank liquidity and bank leverage. Basel III will require banks to hold 4.5% of common equity (up from 2% in Basel II) and 6% of Tier I capital (up from 4% in Basel II) of risk-weighted assets (RWA). Basel III also introduces additional capital buffers, (i) a mandatory capital conservation buffer of 2.5% and (ii) a discretionary countercyclical buffer, which allows national regulators to require up to another 2.5% of capital during periods of high credit growth. Moreover, Basel III introduces a minimum 3% leverage ratio and two required liquidity ratios. The Liquidity Coverage Ratio requires a bank to hold sufficient high-quality liquid assets to cover its total net cash flows over 30 days; the Net Stable Funding Ratio requires the available amount of stable funding to exceed the required amount of stable funding over a one-year period of extended stress. Summary of proposed changes First, the quality, consistency, and transparency of the capital base will be raised. Second, the risk coverage of the capital framework will be strengthened. Third, the Committee will introduce a leverage ratio as a supplementary measure to the Basel II risk-based framework. Fourth, the Committee is introducing a series of measures to promote the build up of capital buffers in good times that can be drawn upon in periods of stress. Fifth, the Committee is introducing a global minimum liquidity standard for internationally active banks that includes a 30-day liquidity coverage...
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...Basel II to Basel III: Changes and Requirements Hesham Hamdy Chief Risk Officer, Arab International Bank Nairobi, 7-8 March 2012 Basel; what is it? • A New Standard for the Measurement of Risks in Banks, and for the Allocation of Capital to cover those risks, published by the Basel Committee of G10 Central Banks. • What Does Basel Committee Do? - Acts as Think-Tank for banking regulators - Issues guidance on best practice for banks - Standards accepted worldwide - Generally incorporated in national banking regulations Basel I • Basel I was the round of deliberations by central banks from around the world, and in 1988, the Basel Committee (BCBS) in Basel, Switzerland, published a set of minimum capital requirements for banks. This was known as the 1988 Basel Accord, and was enforced by law in the Group of Ten (G-10) countries in 1992 . • Basel I primarily focused on credit risk. Assets of banks were classified and grouped in five categories according to credit risk, carrying risk weights of zero (for example home country sovereign debt), ten, twenty, fifty, and up to one hundred percent (this category has, as an example, most corporate debt). Basel I (continued) • Banks with international presence were required to hold capital equal to 8 % of the risk-weighted assets. • Basel I was then widely viewed as outmoded because the world has changed as financial corporations, financial innovation and risk management have developed. Therefore, a more comprehensive set of...
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..."leverage ratio". The leverage ratio was calculated by dividing Tier 1 capital by the bank's average total consolidated assets (not risk weighted);[4][5] The banks were expected to maintain a leverage ratio in excess of 3% under Basel III. In July 2013, the U.S. Federal Reserve announced that the minimum Basel III leverage ratio would be 6% for 8 Systemically important financial institution (SIFI) banks and 5% for their insured bank holding companies.[6] Liquidity requirements[edit] Basel III introduced two required liquidity ratios.[7] The "Liquidity Coverage Ratio" was supposed to require a bank to hold sufficient high-quality liquid assets to cover its total net cash outflows over 30 days; the Net Stable Funding Ratio was to require the available amount of stable funding to exceed the required amount of stable funding over a...
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...23/08/2012 BASEL- III GUIDELINES Background : ➢ RBI released its final guidelines on 2nd May,2012 on the implementation of Basel – III capital regulation in India. ➢ These guidelines will be effective from 1st January,2013 in a phased manner & will be fully implemented by 31st March,2018. ➢ For the FY 2013, Banks will have to disclose the capital ratios computed under the existing guidelines (Basel – II) on capital adequacy as well as those computed under the Basel – III capital adequacy framework. Purpose : • Implementation of Basel III is essential for restoring confidence in the regulatory framework for banks and to ensure a safe & stable global banking system. • Basel-III urges banks to raise the quality of Capital to absorb unexpected losses, to reduce the chance of another financial crisis. Need arose due to : • The U S sub-prime crisis has highlighted the linkages of the main types of risks, especially Credit, Market & Liquidity risks and since then the need for strengthening the capital regime has emerged prominently. Important Points : ➢ Greater focus on “Common Equity” i.e. paid up capital, reserves, retained earnings etc. raising the minimum common equity requirements from the existing 2% of risk-weighted assets to 5.50% by 31st March,2018, and a capital conservation buffer of 2.50%, bring the total common equity requirements to 8% by 2018. ➢ The overall minimum Tier – I capital requirements, which includes common equity and...
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...Basel Committee on Banking Supervision reforms - Basel III Strengthens microprudential regulation and supervision, and adds a macroprudential overlay that includes capital buffers. Capital Pillar 1 Capital Quality and level of capital Greater focus on common equity. The minimum will be raised to 4.5% of riskweighted assets, after deductions. Capital loss absorption at the point of non-viability Contractual terms of capital instruments will include a clause that allows – at the discretion of the relevant authority – write-off or conversion to common shares if the bank is judged to be non-viable. This principle increases the contribution of the private sector to resolving future banking crises and thereby reduces moral hazard. Capital conservation buffer Comprising common equity of 2.5% of risk-weighted assets, bringing the total common equity standard to 7%. Constraint on a bank’s discretionary distributions will be imposed when banks fall into the buffer range. Countercyclical buffer Imposed within a range of 0-2.5% comprising common equity, when authorities judge credit growth is resulting in an unacceptable build up of systematic risk. Liquidity Pillar 2 Containing leverage Leverage ratio A non-risk-based leverage ratio that includes off-balance sheet exposures will serve as a backstop to the risk-based capital requirement. Also helps contain system wide build up of leverage. Pillar 3 Market discipline Revised Pillar 3 disclosures requirements The requirements introduced...
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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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...................................................... 4 II. Definition of the LCR ..................................................................................................... 6 A. Stock of HQLA ..................................................................................................... 7 1. 2. Operational requirements ........................................................................... 9 3. Diversification of the stock of HQLA.......................................................... 11 4. B. Characteristics of HQLA ............................................................................. 7 Definition of HQLA .................................................................................... 11 Total net cash outflows ...................................................................................... 20 1. 2. III. Cash outflows ........................................................................................... 20 Cash inflows ............................................................................................. 34 Application issues for the LCR...
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...General Accepted Accounting Principles HCS 571 April 6, 2015 Theresa Pichelmeyer General Accepted Accounting Principles Healthcare organizations require an accountant to ensure funds are allocated appropriately. There are rules that accounting agencies have to be followed while assessing an organization's financial history. There are many accounting principles implemented to make certain the books are balanced legally. The health care field consists of many aspects that depend on funding for sufficient health care. Ernst and Young (2012) states cost management decisions have to depend on financial and clinical leadership. Accepted accounting principles (GAAP) are the common set of accounting principles, standards, and procedures that companies use to compile their financial statements. This paper includes accounting principles, such as entity concept, money measurement, duality, cost valuation, and stable monetary unit (Cleverley, Song, & Cleverley, 2011) which are pertinent to health care practice. Accounting Entity According to Finkler, Kovner, and Jones (2007) states the accounting entity has to be concise and clear to be certain financial information is beneficial. Financial reports have to include specific objects in a health care organization. Specific entities in accounting will ensure objective and reasonable aspects of profitability. A business has to execute a need and remain profitable. There has to be a...
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...PEPPERDINE UNIVERSITY THE GEORGE L. GRAZIADIO SCHOOL OF BUSINESS AND MANAGEMENT ------------------------------------------------- Capital Markets ------------------------------------------------- CITIC Securities Co. FINAL PROJECT Part 1:Brief Description and History of the InstitutionVerbal CITIC Securities Co. is established on October 25, 1995 in Beijing. CITIC Securities public offered 400 million shares of common shares that listed on the Shanghai Stock Exchange, which start trade on January 6, 2003. The stock is CITIC Securities and stock code is 600030. The main business for CITIC Securities is securities brokerage, securities investment consulting, securities underwriting and sponsorship, securities dealers, asset management, margin, securities investment fund sales and financial product consignment. In 2014, the company's business ranks very well among the Chinese securities industry. At the same year, the Group Equity transaction amount is 9.8 trillion Yuan, ranking the second; stock selling amount is 95.919 billion Yuan, ranking first; bond-selling amount is RMB 3,347.57 billion Yuan, ranking first. There is a significant increase in the scale of business capital. In 2014, inter-bank bond trading volume is 4.1 trillion Yuan, ranking first amount the industry. By the end of 2014, stock mortgage repurchases is 42.4 billion Yuan, ranking first; we achieve a great improvement in progress stock return swaps and commodity business. At the end...
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...this example we have a case in which years 89, 90 and 91 net income is less than net cash provided by operating activities. One of the major reasons for this appears to have been depreciating high cost of equipment. The depreciation is trending downward over the three-year period indicating less long-term assets are being purchased/capitalized to run operations. While depreciation does not involve cash, it does impact net income. In addition, account payables have been decreasing over the last two years and significant cash has been used in the last year to pay the liability. In 1990 there are significant costs associated with restructuring activities. There were costs in all 3 years but 1990 was almost triple that of 89 or 91. Cash flow from operations did not cover investments in depreciable equipment, capitalized software or dividends paid for all three years. The difference was trending in that operations would soon be able to cover these accounts. Dividends paid out decreases over the three-year period and were not paid in 91. Investing in these types of assets decreased over the 3 years. Funds to cover these costs came from long-term debt as well as the sell of class B stock. It is important to point out that Alpha sold off more than it acquired in new depreciable assets. Alpha is also spending cash on long-term debt as a primary source of financing cash flow. It appears in the past they have been funding the business through debt. Accounts receivable also accounted...
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...Introduction The recent global financial crisis caused numerous serious problems around the world. Many countries like the United States, Spain and Greece suffered very heavy strikes during this financial crisis. The Australian banking system is no exception, has been impacted. Some financial institutions grasp this crisis into good opportunities, however other commercial banks are exposed to big challenge and face many risks like credit and liquidity risk. Given this situation, APRA outlines the regulations to ensure and consolidate the safety for Australian banking system, such as Liquidity and Credit quality. This report will analyse the difference between credit risk and liquidity risk at the beginning, then the regulations from APRA in terms of credit risk for the major and smaller banks will be discussed. Next, there will be 3 ratios of credit risk of the “big four” contrast to a major commercial bank in the UK. This report will be end with evaluating the credit risk of 5 major banks and give some findings are regarding with the credit risk of 5 banks. 1. Explain the difference between credit risk and liquidity risk for a bank. 1.1 Credit risk Credit risk is the risk that the promised cash flows from loans and securities held by FIs may not be paid in full (Lange & Saunders, 2013). Normally, all financial institutions have probability to face this risk. However, if borrowed principal is paid on maturity and interest payments are paid on the due date, FIs can eliminate...
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...CCC/Negative/C Weaknesses: • Apparent reluctance of the Irish government to provide further capital support. • Potential for burden-sharing by subordinated bondholders to be extended to senior unguaranteed bondholders. • Very high reliance on emergency liquidity assistance from the Irish central bank. Rationale The ratings on Anglo Irish Bank Corp. Ltd. (Anglo) reflect Anglo's 100% ownership by the government of the Republic of Ireland (BBB+/Stable/A-2) and Standard & Poor's Ratings Services' view of Anglo as a government-related entity (GRE). According to our criteria for rating GREs, we believe there is a "low" likelihood of further extraordinary support for Anglo. This is because we perceive a "limited" link between the bank and the government in terms of future support and we consider Anglo to be of "limited importance" to the government. As a result, the GRE status provides no uplift to our assessment of Anglo's stand-alone credit profile (SACP). The ratings notably reflect Anglo's heavy reliance on the Irish central bank for funding and our view that the Irish government will ask for approval from the European Central Bank (ECB) to impose burden-sharing on unguaranteed, unsecured senior holders of Anglo's bonds in the near future. Anglo is a property-focused commercial lending bank...
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...LIQUIDITY MANAGEMENT 2.0 OBJECTIVES: In this unit, an attempt has been made to understand the following aspects of liquidity management: ● Definition of Liquidity ● Dimensions and Role of Liquidity Risk Management ● Measuring and Managing Liquidity ● Measurement of Liquidity through Ratio Analysis 2.1 INTRODUCTION: The objectives of ALM are two fold: ensuring profitability and ensuring liquidity. Liquidity which is represented by the quality and marketability of assets and liability exposes the organization to liquidity risk. Unlike other risks like interest rate risk, market risk, operational risk etc. that can threaten the very solvency of the bank, liquidity risk is a normal aspect of every day management of a financial institution. In extreme cases, liquidity problems translate into solvency risk problems. As such, bankers should be more aware of the need for bank liquidity. 2.2 DEFINITION: Banks need liquidity to meet deposit withdrawals and to fund loan demands. The variability of loan demand and variability of deposit determine a bank’s liquidity needs. Liquidity represents the bank’s ability to accommodate decreases in liability and to fund increases in assets. A bank is said to have sufficient liquidity when it can obtain sufficient funds either by increasing liabilities or by converting assets, promptly at a reasonable cost. 2.3 DIMENSIONS & ROLE OF LIQUID & RISK MANAGEMENT: Bank’s liquidity management is the process of generating...
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...Shadow banking – chinese shadow banking model INTRODUCTION In early 2007, All States Financial Corporation was celebrating a historic achievement in the year just past when its net income exceeded $1 billion for the first time in history. The firm's 2006 earnings totaled $1.154 billion on year-end assets of $80 billion (see Tables 1 and 2). The corporation was the twelfth largest banking company in the United States. The firm had over 53,000 employees, and the market capitalization of its stock was in excess of $16 billion. The firm was proud of its 3,449 business offices—All States Financial employees called them "stores"—which were distributed across all 50 states. The corporation had three major components: All States Financial Banks, with offices in 16 states; All States Financial Mortgage, which claimed to finance one out of every 15 mortgages in the United States; and All States Financial Financial, a consumer finance subsidiary with 3.6 million customers. FUNDING PATTERN All States Financial's three business components provided the firm with an enormously diverse base of earning assets, including net loans and leases of $38 billion (Table 1). Much of the asset base consisted of consumer products, including installment loans, sales finance contracts, and credit card loans. All States Financial held a large portfolio of mortgage servicing rights. In addition, the firm had a diverse presence in business lending. Its typical small office, often located outside of large...
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...1. Introduction 3 2.Company Profile- Brief Overview 3 2.1 Consumer banking: 6 3. Liquidity Risk: 7 3.1 Measuring Liquidity Risk –SCB 7 3.2 Measuring Credit Risk Exposure 10 3.3 Market Rate Risk 11 3.4 Value at Risk (VaR) 12 4. CAMEL RATING SYSTEM 13 1. Executive Summary International Banking can be defined as banking transactions crossing national boundaries. The activities involves like international lending; claims of domestic bank offices on foreign residents, claims of foreign bank offices on local residents, claims of domestic bank offices on domestic residents in foreign currency are the major activities involved in International Banking. The evolution of banking history dates back to 2000 BC in Assyria and Babylonia; while the modern banking systems originated in Renaissance Italy. The major incentive for the growth of international banking was migration of domestic customers who were MNE’s growing foreign activities and the impacts of regulatory differences. The report is comprised of Liquidity risks, market risks, credit risks of Standard Chartered Bank Plc. The company also demonstrates the firm efficiency of the firm using CAMEL RATING SCALE. The overview of the analysis states that the firm is operating proficiently under the guidelines of BASEL. Introduction According to Lewis & Davis (1987, p. 219), international banking is a denotation of cross-border and cross currency facets of banking business. They classify international banking into...
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