Westminster international university in tashkent

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BTP TW 3 Seminar 2022-23 with answer

ACADEMIC YEAR: 2022 – 2023


Q1. What is BIS? Why BIS has been established?


The Bank for International Settlements (BIS) was established in 1930 for German reparation as an outcome of Dawes plan (1924) & Young plan (1929). The Bank for International Settlements (BIS) is an international organisation that serves central banks and other financial authorities across the globe to support their pursuit of monetary and financial stability through international cooperation. It also acts as a bank for central banks.
The BIS is owned by 63 member central banks and monetary authorities from around the world. It provides members with: • a forum for dialogue and broad international cooperation • a platform for responsible innovation and knowledge-sharing • in-depth analysis and insights on core policy issues • sound and competitive financial services

Q2. What is the core feature of Basel Accord I ?

Basel I, also known as the Basel Capital Accord, was formed in 1988. It was created in response to the growing number of international banks and the increasing integration and interdependence of financial markets. Regulators in several countries were concerned that international banks were not carrying enough cash reserves. Since international financial markets were deeply integrated at that time, the failure of one large bank could cause a crisis in multiple countries.
It also provided a framework for managing credit risk through the risk-weighting of different assets. According to Basel I, assets were classified into four categories based on risk weights:
❖ 0% for risk-free assets (cash, treasury bonds)
❖ 20% for loans to other banks or securities with the highest credit rating
❖ 50% for residential mortgages
❖ 100% for corporate debt
Next the capital adequacy ratio (CAR) been calculated by the following formula : the amount of regulatory capital divided by the amount of risk-weighted assets. (CAR= RC/RWA) . It explains that the greater the amount of risk-weighted assets, the more capital is needed, and vice versa. A key limitation of Basel I was that the minimum capital requirements were determined by looking at credit risk only. It provided a partial risk management system, as both operational and market risks were ignored.

Q3. What is the core feature of Basel Accord II?

Basel II, an extension of Basel I, was introduced in 2004. Basel II included new regulatory additions and was centered around improving three key issues – minimum capital requirements, supervisory mechanisms and transparency, and market discipline. Basel II created a more comprehensive risk management framework. It did so by creating standardized measures for credit, operational, and market risk. It was mandatory for banks to use these measures to determine their minimum capital requirements. Basel II created standardized measures for measuring operational risk. It also focused on market values, instead of book values, when looking at credit exposure. Additionally, it strengthened supervisory mechanisms and market transparency by developing disclosure requirements to oversee regulations. Finally, it ensured that market participants obtained better access to information.
In general , Basel II has three pillars :

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