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Dic 12rd

Basel Agreement 1

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Following the collapse of Lehman Brothers in 2008 and the financial crisis that followed, BCBS decided to update and strengthen the agreements. The reasons cited by BCBS for the collapse were poor governance and risk management, inadequate incentive structures and an over-indebted banking sector. In November 2010, an agreement was reached on the comprehensive approach to capital and liquidity reform. This agreement is now known as Basel III. The Basel Agreements are an agreement between the Member States of the Basel Committee on the need and method of strengthening regulation in order to achieve and maintain a strong international banking system. The agreements are intended to respond to the desire of industrialized countries to establish a common framework for the supervision of international banks. Moreover, Member States and several non-members will want to implement the agreements, even if the Basel Committee does not have the legal authority to implement its decisions. The peculiarities of different countries inform the Committee`s decision not to legislate on the application of the Basel agreements. The decision to legislate on aspects of the agreements is left to the discretion of the Committee`s Member States. In September 2010, the Group of Governors and Supervisors (GHOS) announced higher capital standards for commercial banks, which were agreed in July on the overall design of the Capital and Liquidity Reform Package, now known as Basel III. In November 2010, the new capital and liquidity standards were approved at the G20 Heads of State and Government Summit in Seoul and adopted at the Basel Committee meeting in December 2010.

Source: International Monetary Fund (IMF), 2007. Coordinated exercise in compiling financial strength indicators. IMF, Washington. It`s www.imf.org/external/np/sta/fsi/eng/cce/index.htm. Why and how do forms of banking regulation in developing countries differ from the principles of the Basel Agreements? How will the adoption of the Basel agreements benefit from the supervision of deposit banks in developing countries? BCBS conducted two quantitative impact analyses (QIS) following the publication of the Basel II framework in June 2004. QIS 4 included banks in the United States, Germany and South Africa. QIS 5 included banks in adopted countries in other countries. Both studies reported a significant reduction in the minimum capital requirements for AIRB banks compared to the capital required by the 1988 Basel Agreement. Chart 3 shows a histogram of estimates of the actual change in minimum capital that, under the AIRB approach, would be required for banks participating in Exercise QIS 4, relative to the capital levels required in the United States.

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