BIS issued “Basel III: A global regulatory framework for more resilient banks and banking system” in 2010 in order to strengthen global capital and liquidity rules with the goal of promoting more resilient banks and revised it in 2011.
Thereafter, BCBS formulated six frameworks relating to Basel III.
· Basel III: The Liquidity Coverage Ratio and liquidity risk monitoring tools,
· Guidance for national authorities operating the countercyclical capital buffer,
· Basel III: the net stable funding ratio,
· Basel III leverage ratio framework and disclosure requirements,
· Global systemically important banks: updated assessment methodology and the higher loss absorbency requirement; and
· A framework for dealing with domestic systemically important banks
The reform was a response to financial crisis 2008 and to improve the banking sectors ability to absorb the loss on a going concern basis.
The fundamental reasons of crisis were:
· Excessive on and off balance sheet leverage
· Erosion of level and quality of capital
· Insufficient liquidity buffers in banks
The reforms in capital accord were made to addresses the lessons learned for the financial crisis and make banks to absorb losses and includes but not limited to:
· Tightening of capital ratios and strengthening of quality of capital
· Introduction of Buffer Capital requirement and non-risk based leverage ratio
· Introduction of liquidity rules
· Systematically Important Financial Institutions measure
· Changes in Counterparty risk measurement etc.
Accordingly, NRB has issued directives to Commercial Banks to parallel run the New Capital Adequacy Framework designed based on Basel III requirement. The parallel run shall start from the monthly reporting of Poush End and shall continue till end of fiscal year. Thereafter it will become effective.
The program titled as “Capital Adequacy Framework based on Basel III” What’s new and what are remaining is designed to impart knowledge on New Capital Adequacy Framework and remaining upcoming frameworks based on Basel III.