Podcast
Questions and Answers
At what age did the individual start his career?
At what age did the individual start his career?
- 16
- 22
- 20
- 18 (correct)
Why did Nick Leeson leave for Singapore according to the text?
Why did Nick Leeson leave for Singapore according to the text?
- To seek better career opportunities
- To avoid paying taxes
- To escape from legal issues in the UK (correct)
- To start his own trading company
What position was Nick Leeson promoted to at the age of 24?
What position was Nick Leeson promoted to at the age of 24?
- CEO
- Financial Analyst
- General Manager (correct)
- Assistant Trader
How much were the initial losses on account 88888 estimated at?
How much were the initial losses on account 88888 estimated at?
What did Nick Leeson use the 'Error account' for?
What did Nick Leeson use the 'Error account' for?
Why did Barings' management make a fatal error involving Nick Leeson?
Why did Barings' management make a fatal error involving Nick Leeson?
What kind of risk was not taken into account by Basel I?
What kind of risk was not taken into account by Basel I?
What event caused Nick Leeson's losses to reach £ 860 million?
What event caused Nick Leeson's losses to reach £ 860 million?
What was the main limitation of Basel I according to the text?
What was the main limitation of Basel I according to the text?
What did Nick Leeson bet on that led to his losses?
What did Nick Leeson bet on that led to his losses?
Which Basel framework introduced a dynamic approach to risk management?
Which Basel framework introduced a dynamic approach to risk management?
What was a new risk that Basel II aimed to consider that Basel I did not?
What was a new risk that Basel II aimed to consider that Basel I did not?
What is the main purpose of Basel 3 regulations?
What is the main purpose of Basel 3 regulations?
Which ratio is used to calculate Core Equity Tier 1 (CET1)?
Which ratio is used to calculate Core Equity Tier 1 (CET1)?
What does the Capital conservation buffer aim to achieve according to Basel 3 regulations?
What does the Capital conservation buffer aim to achieve according to Basel 3 regulations?
What is included in Regulatory Capital according to Basel 3 regulations?
What is included in Regulatory Capital according to Basel 3 regulations?
Which type of risks are taken into consideration when calculating Risk Weighted assets under Basel 3 regulations?
Which type of risks are taken into consideration when calculating Risk Weighted assets under Basel 3 regulations?
How should banks rebuild Capital conservation buffers after they have been drawn down?
How should banks rebuild Capital conservation buffers after they have been drawn down?
What are the three pillars in Basel II for the prudential system?
What are the three pillars in Basel II for the prudential system?
What was a significant factor contributing to the subprime crisis mentioned in the text?
What was a significant factor contributing to the subprime crisis mentioned in the text?
What does securitization involve according to the text?
What does securitization involve according to the text?
How did the decline in key rates of the FED affect the US economy?
How did the decline in key rates of the FED affect the US economy?
What was a consequence of the sudden and rapid increase in monthly payments on 'fragile' households?
What was a consequence of the sudden and rapid increase in monthly payments on 'fragile' households?
What was a key element of the first pillar in Basel II according to the text?
What was a key element of the first pillar in Basel II according to the text?
What was one of the reasons for the misappropriation of solvency ratios by banks?
What was one of the reasons for the misappropriation of solvency ratios by banks?
What is one of the impacts of Basel 3 on the banking industry?
What is one of the impacts of Basel 3 on the banking industry?
Why was the quality and level of capital, liquidity, and leverage ratios strengthened in Basel 3?
Why was the quality and level of capital, liquidity, and leverage ratios strengthened in Basel 3?
What is a key component of Basel 3's Pillar I?
What is a key component of Basel 3's Pillar I?
Why was the implementation of Basel III important in the EU?
Why was the implementation of Basel III important in the EU?
What was a consequence of the snowball effect on global banks due to falling US real estate prices?
What was a consequence of the snowball effect on global banks due to falling US real estate prices?
How did Basel 2.5 differ from Basel 3?
How did Basel 2.5 differ from Basel 3?
What was a key reason for the creation of BASEL 2.5?
What was a key reason for the creation of BASEL 2.5?
Why did banks face challenges such as low interest rates and strict regulatory frameworks?
Why did banks face challenges such as low interest rates and strict regulatory frameworks?
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Study Notes
Basel III Global Regulation
- Basel III is a global regulation that defines the minimum capital required to face different types of risks, including credit risk, market risk, operational risk, counterparty risk, currency risk, and equity risk.
- The regulation has three pillars: Pillar I (minimum capital requirements), Pillar II (prudential supervision and risk management), and Pillar III (market discipline and transparency).
- The solvency ratio is calculated by dividing the regulatory capital by the risk-weighted assets.
Capital Structure
- The regulatory capital consists of three tiers: Common Equity Tier 1 (CET1), Additional Tier 1 (AT1), and Tier 2.
- CET1 includes regulatory capital, reserves, and annual results.
- AT1 is composed of hybrid debt (subordinated securities).
- Tier 1 is the sum of CET1 and AT1.
- Tier 2 includes qualified subordinated debts.
Risk Management
- Basel III introduces a new set of liquidity ratios, including the Liquidity Coverage Ratio (LCR) and the Net Stable Funding Ratio (NSFR).
- The regulation also strengthens the requirements for market risks, securitization, and large exposures.
- Counterparty risk is also addressed, with specific guidelines for managing this type of risk.
Implementation and Challenges
- Basel III was implemented in 2014, with a phased implementation period.
- The regulation has faced challenges, including the need for banks to hold higher levels of capital and liquidity.
- The regulation has also led to increased costs and complexities for banks.
Case Study: Nick Leeson and Barings
- Nick Leeson was a trader who worked for Barings Bank and was responsible for hiding losses in an "error account" until the bank's collapse in 1995.
- Leeson's actions were facilitated by the bank's failure to properly supervise his trading activities.
- The case study highlights the importance of effective risk management and supervision in banks.
Evolution of Basel Regulations
- Basel I (1988) only considered credit risk and did not account for other types of risk.
- Basel II (2004) introduced three pillars: capital requirements, prudential supervision, and market discipline.
- Basel III (2010) strengthened the regulation further, introducing new liquidity ratios and stricter capital requirements.
Subprime Crisis
- The subprime crisis was triggered by the decline in housing prices and the bursting of the housing bubble in the US.
- The crisis was fueled by aggressive lending policies, securitization, and the failure of credit rating agencies.
- The crisis led to a global financial crisis, with widespread bank failures and a deep recession.
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