introductory part

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Implementation of BASEL III in Banking sector

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Page 1: Introductory part

Implementation of BASEL III in Banking sector

Page 2: Introductory part

Term Paper On

B-406:Central Banking & Regulations

Submitted To:Mr. Shahidul Islam Zahid

LecturerDepartment of Banking

University of Dhaka

Submitted ByGroup-12

Date of Submission17th Nov, 2011

Page 3: Introductory part

Date: 17th November, 2011.

ToThe course teacherMr. Shahidul Islam Zahid LecturerDepartment of BankingUniversity of Dhaka

Subject: An application for acceptance of term paper.

Dear Sir,It is our pleasure to submit to you the term paper on ‘Implementation of BASEL- that you have assigned us to prepare. We have tried my best in preparing this term paper and hope it will satisfy your desire and my course requirement.

We will be always available if any clarification is needed. We request you to excuse us for any mistake that may occur in the term paper despite our best effort. We believe you will view my mistakes with your generous consideration.

Yours sincerely

Name ID No: Signature

Nadia Rahman 16

Md. Nazmul Alam 02

Md .khairuzzman 17

Md. Farhadur Rahaman50

Imtiaz Ahmed Nayeem 09

Sohana Ferdaus 18

Page 4: Introductory part

Acknowledgement

reparing the term paper on BASEL III implementation in banking sector has been a great experience for us in light of the course 406:Central Banking: Regulations and Supervision We strongly believe works like this will surely help us to have a clear

concept about Basel Accord and Basel III. We express our sincere gratitude to our honorable course teacher Md. Shahidul Islam, Lecturer, Department of Banking, University of Dhaka for his guidance, advice and giving outline for preparing this report.

PBesides, we thank our group members for their hard working, encouragement and collaboration in the success worthy completion of this report.

Page 5: Introductory part

Executive SummaryExecutive Summary

BASEL III is a new global regulatory standard on bank capital adequacy and liquidity agreed by the members of the Basel Committee on Banking Supervision. The third of the Basel Accords was developed in a response to the deficiencies in financial regulation revealed by the global financial crisis. Basel III strengthens bank capital requirements and introduces new regulatory requirements on bank liquidity and bank leverage.

Basel III is an evolution rather than a revolution for many banks. It was developed from the existing Basel II framework, and the most significant differences for banks are the introduction of liquidity and leverage ratios, and enhanced minimum capital requirements. An effective implementation of Basel III will demonstrate to regulators, customers, and shareholders that thebank is recovering well from the global banking crisis of 2008. A speedy implementation will also contribute to a bank’s competitiveness by delivering better management insight into the business, allowing it to take advantage of future opportunities. Although implementing Basel III will only be an evolutionary step for many organizations, the impact of Basel III on banks and the banking sector should not be underestimated, because it will drive significant challenges that need to be understood and addressed. For every bank, working out the most cost-effective model for implementing Basel III will be a critical issue.

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. In addition, 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.

Page 6: Introductory part

Table of contents

serial particulars Page1.0

Introduction1-2

1.1 Methodology1

1.2 objective of the report2

1.3 Limitations3

2.0 Overview

3.0 BASEL III at a glance 3-64.0 Implementation of BASEL III 65.0 Features of Basel III 6-86.0 Detail analysis of Basel III 8-97.0 Transition arrangements 9-118.0 Impact of Macroeconomic in Basel III 12

9.0 Challenges that facing to implement the Basel III

12-15

10.0 10.Enforcement of Basel III on financial institutions

15-17

11.0 Conclusion 17