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to avoid misuse of banks—to reduce the risk of banks being used for criminal purposes, e.g. laundering the proceeds of crime; to protect banking confidentiality; credit allocation—to direct credit to favored sectors; it may also include rules about treating customers fairly and having corporate social responsibility.
The Basel Committee on Banking Supervision explained the rationale for adopting this approach in a consultative paper issued in 2001. [3] Such an approach has two primary objectives - Risk sensitivity - Capital requirements based on internal estimates are more sensitive to the credit risk in the bank's portfolio of assets
BCBS 239 is the Basel Committee on Banking Supervision's standard number 239. The subject title of the standard is: "Principles for effective risk data aggregation and risk reporting".
Basel III requires banks to have a minimum CET1 ratio (Common Tier 1 capital divided by risk-weighted assets (RWAs)) at all times of: . 4.5%; Plus: A mandatory "capital conservation buffer" or "stress capital buffer requirement", equivalent to at least 2.5% of risk-weighted assets, but could be higher based on results from stress tests, as determined by national regulators.
1996 Interagency Policy Statement on Interest Rate Risk [6] 1996 FED Commercial Bank Examination Manual [7] (Section 4090, Interest-Rate Risk, has been completely revised.) 1996 FED Bank Holding Company Supervision Manual [8] (section 2127) This had a minor update in 2010 discussing the 2010 interagency advisory on interest-rate risk management.
According to the study, capital regulation based on risk-weighted assets encourages innovation designed to circumvent regulatory requirements and shifts banks' focus away from their core economic functions. Tighter capital requirements based on risk-weighted assets, introduced in the Basel III, may further contribute to these skewed incentives.
The Basel Committee on Banking Supervision (BCBS) [1] is a committee of banking supervisory authorities that was established by the central bank governors of the Group of Ten (G10) countries in 1974. [2] The committee expanded its membership in 2009 and then again in 2014.
Then, the risk weights for individual exposures are calculated based on the function provided by Basel II. Below are the formulae for some banks' major products: corporate, small-medium enterprise (SME), residential mortgage and qualifying revolving retail exposure.