Liquidity In Banking System
3.3 BASEL III
Basel III also known as “A global regulatory framework for more resilient banks and banking systems” was introduced to increase the strength of the banking sector, improve regulatory and supervisory activities and risk management within banks. It aims at directing banks towards maintaining a higher level of capital and also accessing the quality and quantity of capital, which is more comprehensive as compared to Basel II, to facilitate banks to absorb shocks during economic or financial stress. Basel III was introduced after the occurrence of the 2008 financial crisis affecting internationally present banks having inadequate liquidity buffers. This accord made numerous additions to the norms laid down under Basel II. The three
…show more content…
Banks experienced difficulties during the financial crisis even though the prescribed level of capital was maintained as per the Basel II norms. Prior to the financial crisis, there was enormous liquidity in the market and funds were available at low cost. On the occurrence of the financial crisis which drew out liquidity from the market, there persisted severe stress in the banking system.
Two objectives of maintaining liquidity ratios were: To ensure banks in maintaining adequate liquid resources in time of stress. Resources must last for a month. To facilitate banks’ resilience in the long term by arriving at incentives for banks to maintain more stable sources for
…show more content…
It comprises of intraday liquidity risk applicable to the bank during trading hours. It also includes accessing liquidity risk profiles on a regular basis. Metrics may be developed to access the concentration of funding towards a specific currency, counterparty or instrument. Another metric to measure the available unencumbered assets i.e. the potential collaterals that could be accepted in case of secured funding. The Liquidity coverage ratio currency wise may be checked by the supervisor on a regular basis. Banks must have a source of receiving instant data for liquidity difficulties and also monitor prices of various liquid securities and price of assets in the market. LEVERAGE RATIOS
A key feature of the financial crisis, there was excessive leverage in the banking system with regard to on-balance sheet and off-balance sheet exposures. Hence, during the crisis, the banks were forged to reduce the loans towards these exposures as a result of deteriorating value of the asset prices.
Leverage ratio, a component of Pillar I, may be applied to banks on the discretion the RBI. This is to be computed on a quarterly
Nt1310 Unit 2 Case Analysis
140 Words | 1 Pages10 = Number of periods 2%= Interest rate per period 1. 21899= The corresponding value 1.21899 x 150,000 = 182,848.50= multiply The loan Future Value is: 182,848.50; Rounded: 182,849 Principal: 150,000 Rate: 4% divided by 2=2% Number of periods: 2x5= 10 150,000 (1 + .002) ^ 10 = 153027.145 or 153027.15 Rounded 153,027.15 – 150,000= 3,027.15 I=PRT= $200,000 x .006 x 28 = $33,600 236,468.44 - 200,000 =36,46 200,000divided by100
Federal Reserve Tools Essay
462 Words | 2 PagesWeek 5 Written Assignment Federal Reserve 1 Federal Reserve Tools Name Withheld University of the People BUS 2203 Instructor Joel Almanzar Week 5 Written Assignment Federal Reserve 2 In my essay this week we will explore the Federal Reserve. What monetary tool that is available to Federal Reserve is used most often, and why is it used? I will describe how expansionary activities by the FED impacts credit availability, money supply, interest rates, and security prices.
Hoover Dbq
1435 Words | 6 PagesMany banks had collapsed or were substantially injured as the result of Black Tuesday. But it did have a little impact (Nash 334-336). The National Credit Corporation was composed of the major banks in the United States. NCC’s main goal was lending money to small banks in the United States in order to minimize the repercussions of the smaller bank’s crash. However the major banks did not want to lend money to the smaller banks because they were having problems themselves (Nash 336-337).
Great Depression Dbq
1331 Words | 6 PagesAlthough there are many aspects to the Great Depression, this essay will focus on five important points. First, an in depth look at the cause of the Great Depression will be examined. Then, how it affected the American people will be discussed. Next, an observation of how President Roosevelt’s administration worked to fix the Great Depression will be addressed. Also, the effectiveness of the programs put in place by the government will be presented.
Compare And Contrast The Great Depression And Fdr
921 Words | 4 PagesPeople tried to deal with the closings of banks and congressional leaders were finding a way to reopen banks as soon as possible and the issue was to make the relation between gold and notes weak. On March 13, an emergency legislation went into effect and member banks could reopen because they were strong enough to survive the crisis. Consequently the banking system had been
A History Of The Federal Reserve Why Was It Formed?
1007 Words | 5 PagesDue to the widespread panics that were causing banks to go out of business, banks were in need an emergency reserve so in times of panic. In 1907, the sever panic wreaked havoc on the banking system as the banks did not have enough supply to keep up with the demand of the withdrawals (In Plain English, n.d.). Wide spread panic in
Why Was The Federal Reserve Formed?
1005 Words | 5 PagesAs one bank failed people not even using that bank saw the panic and would withdraw their deposits even when a bank was not in any danger of failing. Because of the widespread panics that were driving banks out of business banks needed an emergency reserve so in times of panic they would have the supply to keep up with the demand of the withdrawals. Due to the severe panic in 1907, that wreaked havoc on the banking systems, it led to Congress creating the federal reserve act. The federal reserve regulates banks and makes emergency loans if they ever run short of money so there would be fewer panics. The federal reserve is known as the lender of last resort in times of crisis.
New Deal Dbq
729 Words | 3 PagesAnother reform to the Emergency Banking Act of 1933 happened three months later. The new reform increased the power of the Federal Reserve to regulate banking, which divided the banks that dealt with public deposits of investors on Wall Street (Rauchway). Roosevelt feared that one day the FDIC would have to pay out too large a sum, which would lead to the closing of more banks, but he agreed with the reform anyway (Rauchway). In 1935 the FDIC obtained a permanent charter, and now plays a large role in today’s banking
President Jackson's Policy Toward The Second Bank Of The United States
1718 Words | 7 PagesBanking system is essential in our economics to maintain an effective circulation of money. The bank has functions for regulation of currency to aid strong economy. Distribution of the money is crucial to promote construction of the nation and prevention of bankruptcies. In our modern economic structure is supported and developed by the banking system. However, there was a period that the national bank was shut down by the government the consequence of the bank war.
Nt1330 Unit 4 Case Study
482 Words | 2 Pages33.385 million =10.235 million * exp (0.12*10) is the value of the of the population when the rate changes by an increase of 2%. 38.950 million =10.235 million * exp (0.14*10) is valuation of the future population when the rate increases by 4% from its original rate of 10% for a total rate of 14%. Each input is accurate in comparison with its Excel counterpart, however, the Word calculations will have greater precision due to the estimation of the of the Excel counterparts.
1981-1982 Recession Timeline
744 Words | 3 PagesThe purpose of this summary is to describe how the recession started, the events that led up to it, the size, and what happened in result. The recession started in July of 1981 and ended in November of 1982. In 1980, the United States economy was already in bad shape due to a 6 month long recession that the United States economy eventually made a modest recovery from. Although the short 1980 recession is not the focus of this report, it did play a part in the events that led up to the 1981-1982 recession.
The Pros And Cons Of Inventory Accounting Methods
979 Words | 4 PagesThroughout the years, several different methods have been developed, which are dependent on the respective regulations of countries and institutions, such as the Internal Revenue Service (IRS). The most common inventory methods include FIFO (first-in, last-out), LIFO (last- in, first-out), HIFO (highest-in, first-out), FEFO (first-expired, first-out), as well as the average costing method (AVCO). Each of them has their specific advantages and disadvantages, and comes with certain restrictions and regulations (Lee and Hsieh, 1983, p.7). This paper is going to take a look at the choice of inventory accounting methods of FIFO and LIFO, and is therefore not going to consider the other inventory accounting methods, as that goes beyond the topic of this
Marriott Corporation Case Study
1050 Words | 5 PagesNow, Cost of equity (Re) = 8.95% + 1.21×7.43% = 17.94% While determining the cost of debt we again used 8.95%,30 year U.S. Government Interest Rate given in Table B as the risk free rate plus 1.10% debt rate premium above Government rate, which is given in Table A. Cost of debt (Rd) = 8.95% + 1.10% =
Harry Davis Case Study
846 Words | 4 Pagesd. (3) Harry Davis’ estimated cost of equity (rs): We have, rRF = risk-free rate RPM = market risk premium b = beta coefficient rs = rRF + (RPM)bi e. (1) Estimated cost of equity using discounted cash flow (DCF) approach: We have, = = = = 13.8%.
Swot Analysis Of Grace Kennedy
904 Words | 4 PagesExposure to credit risk is managed in part by obtaining collateral and corporate and personal guarantees. Counterparty limits are established by the use of a credit classification system, which assigns each counterparty a risk rating. Risk ratings are subject to regular revision. Liquidity Risk Liquidity risk is the risk that the company is unable to meet its payment obligations associated with its financial liabilities when they hall due and to replace funds when they are withdrawn. GK’s liquidity management process, as carried out within the Group through the ALCOs and treasury departments includes: o Monitoring future cash flows and liquidity on a daily basis o Maintaining a portfolio of highly marketable and diverse assets that can easily be liquidated as protection against any unforeseen interruption to cash flow o Maintaining committed lines of credit Currency Risk Currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates.
More about Liquidity In Banking System
Nt1310 Unit 2 Case Analysis
140 Words | 1 PagesFederal Reserve Tools Essay
462 Words | 2 PagesHoover Dbq
1435 Words | 6 PagesGreat Depression Dbq
1331 Words | 6 PagesCompare And Contrast The Great Depression And Fdr
921 Words | 4 PagesA History Of The Federal Reserve Why Was It Formed?
1007 Words | 5 PagesWhy Was The Federal Reserve Formed?
1005 Words | 5 PagesNew Deal Dbq
729 Words | 3 PagesPresident Jackson's Policy Toward The Second Bank Of The United States
1718 Words | 7 PagesNt1330 Unit 4 Case Study
482 Words | 2 Pages1981-1982 Recession Timeline
744 Words | 3 PagesThe Pros And Cons Of Inventory Accounting Methods
979 Words | 4 PagesMarriott Corporation Case Study
1050 Words | 5 PagesHarry Davis Case Study
846 Words | 4 PagesSwot Analysis Of Grace Kennedy
904 Words | 4 Pages