65.‘Basel III Accord’ or simply ‘Basel III’, often seen in the news, seeks to
a) develop national strategies for the conservation and sustainable use of biological diversity
b) improve banking sector’s ability to deal with financial and economic stress and improve risk management
c) reduce the greenhouse gas emissions but places a heavier burden on developed countries
d) transfer technology from developed countries to poor countries to enable them to replace the use of chlorofluoro carbons in refrigeration with harmless chemicals
The correct answer is Option 2.
Basel-III Accord:
It was issued in 2010 as a response to the financial crisis of 2008.
It aims to promote a resilient banking system by focusing on capital leverage funding and liquidity. Hence, Option 2 is correct.
The capital adequacy ratio was fixed at 12.9%.
The leverage rate was fixed at 3%.
The banks’ strength was improved Liquidity Coverage Ratio and Net Stable Fund Rate.
Additional Information
Basel Committee:
Basel accords refer to the Banking supervision accords issued by the Basel Committee on banking supervision.
The Basel Committee on banking supervision is a global standard committee for the regulation of banks.
It was established by the central bank governors of 10 countries in 1974.
Its objective is to improve the quality of banking supervision worldwide.
The headquarters is in Basel, a city in Switzerland.
Basel Norms:
Basel norms are the international banking regulations to strengthen the international banking system.
It is in the form of an agreement by the Basel Committee of Banking supervision which mainly focuses on the risk to banks and the financial system.
Important Points
Basel-I norms:
Basel, I was introduced in 1988 and focused on credit risk.
India adopted Basel 1 guidelines in 1999 as it defines the capital and structure of risk weights for banks.
The minimum Capital requirement was fixed at 8% of risk-weighted assets.
Basel-II norms:
Basel II norms were established in 2000 and were based on three parameters capital adequacy requirement, supervisory requirement, and market discipline.
A minimum capital adequacy requirement of 8% of risk-weighted assets was fixed.
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