Why Basel Norms are Essential?
Lending to borrowers that bear their risks exposes banks to various risks and defaults. Banks lend money obtained from the market and people’s deposits, as a result of which they occasionally experience losses. As a result, banks must set aside a specific amount of capital as protection against the risk of non-recovery to handle such situations.
Basel Norms
The Basel Committee on Banking Supervision (BCBS) established the Basel Norms as the standards for international banking laws. These standards aim to harmonize international financial legislation and strengthen the global banking system. A total of 27 people from different nations, including India, make up BCBS. Basel, I, II, and III are the three guidelines the Basel Committee has released to achieve its goal. The Basel Committee on Banking Supervision series focuses on the threats to banks and the financial system. Basel-III, the most recent agreement, was approved in November 2010. Basel III mandates a minimum level of common equity and a minimum liquidity ratio for banks. Its administrative headquarters are in the Basel, Switzerland-based headquarters of the Bank of International Settlements (BIS). Thus, the Basel norms’ name.
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