ECONOMICS (CBSE/UGC NET)

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ECONOMICS

FINANCIAL MARKETS

Question [CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
As well as regulation introduced by individual governments, there have been international agreements to regulate financial markets. For example, the Basel Committee (a committee of global banking authorities), have made recommendations on minimum liquidity and capital levels for banks. These should help to increase the financial stability of banks by making sure they have a buffer in case of a fall in asset values or a bank run.
A
Yes, I understand this from the notes
B
No, I don’t understand this from the notes
C
No, I don’t understand this, as I have not read the notes
D
None of the above
Explanation: 

Detailed explanation-1: -Basel III is an international regulatory accord that introduced a set of reforms designed to mitigate risk within the international banking sector by requiring banks to maintain certain leverage ratios and keep certain levels of reserve capital on hand. Begun in 2009, it is still being implemented as of 2022.

Detailed explanation-2: -Minimum capital is the technical, quantitative heart of the accord. As in Basel I, the new standard required banks to hold capital against 8% of their risk-weighted assets. But Basel II also introduced a tiered system for different types of capital.

Detailed explanation-3: -It focused on three main areas: minimum capital requirements, supervisory review of an institution’s capital adequacy and internal assessment process, and the effective use of disclosure as a lever to strengthen market discipline and encourage sound banking practices including supervisory review.

Detailed explanation-4: -Basel III introduced the usage of two liquidity ratios – the Liquidity Coverage Ratio and the Net Stable Funding Ratio. The Liquidity Coverage Ratio requires banks to hold sufficient highly liquid assets that can withstand a 30-day stressed funding scenario as specified by the supervisors.

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