The Structure and Content of Basel Ii Accord Finance Essay

Basel II was implemented in the year 2004 by BCBS (Basel Committee on banking supervision), it was to create an international standard of banking regulations on bank's capital to safeguard financial, operational and market risks.

Role of FSA to bank supervision

The Financial Services Authority (FSA) is an independent non-governmental body, and a company limited by guarantee responsible for the financial regulation.FSA aims to provide efficient, orderly and fair financial markets to help customers achieve fair deal and to improve its business capability and effectiveness The objective of FSA includes • Standard market confidence in financial system; • promoting public understanding of the financial system; • securing the appropriate degree of protection for consumers; and • helping reduce financial crime The FSA is wholly responsible for the Treasury and to Parliament for the effective discharge of its functions. à FSA is responsible for the authorisation and prudential supervision of financial services firms, including banks, building societies, investment firms, insurance companies and brokers, credit unions and friendly societies. The FSA also applies conduct of business regulation for the mortgage, insurance and investment mediation activities of these firms. àThe Board provides advice on the following matters: - Policies and principles of supervision of institutions authorised under banking supervisory legislation; - The development and evolution of supervisory practice; - Administration of banking supervisory legislation, including advice on individual cases; -Structure, staffing and training of banking supervisors àThe Board and its members are free to take the initiative in raising matters within these areas and have rights of access to the Chancellor. Q---3 Introduction of Basel II made change in return on regulatory capital as the calculation for regulatory capital changed.

This changed the lending practices in banks, financial institutions and other insurance companies, Basel II made changes in the internal environment for all lenders; it created great risk based pricing in the loan market and creates difference in capital required between risky and safer lenders, different types of lenders such as consumer finance are safer and lenders for mortgage they become riskier. In this competitive world, due to global financial crisis has revealed that there is need for risk management and self-assessment in every process. The financial crisis has revealed the weakness in approach to risk management that was developed by Basel II. Basel II has failed to provide adequate information such as collapse in market liquidity as investor confidence was disappeared, huge losses that occurred in the market value of securities held by the bank. Mortgage backed securities were on to liquidity, the past performance on reliability of credit ratings were not credibility, due to risk in the lenders the financial crisis shows at time of severe stress the banks and other financial institutions have potential to create domino effect where safe lenders can be put to risk, because of other banks and institutions are at risk the counter parties are also put to risk These are the criteria's which resulted in implementation of Basel III, these changes are considered by the Basel committee and the place where changes required are analysed, updated through a range of changes embodied as Basel III

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