BASELS FOR BANKING SUPERVISION

BASELS FOR BANKING SUPERVISION 

What is Basel III?

The Basel Committee on Banking Supervision was established in 1974 to contain global banking risks by formulating guidelines and regulations relating to credit, capital, markets and operations. Its first accord, Basel I, was issued in 1988 and updated in 2004 with Basel II.

Basel III was issued in the aftermath of the global financial crisis in 2008, with tighter regulations and requirements around capital adequacy, leverage, liquidity and funding to ensure that banks maintain sufficient capital to meet financial obligations and absorb unexpected losses.

Sri Lanka is implementing capital adequacy requirements conforming to Basel III in June 2017, setting targets over the next two years.However, the process started much earlier.

How is Sri Lanka rolling out Basel III?

Basel III will be in effect from June 2017, but there aren’t any overnight changes. The Central Bank introduced the Internal Capital Adequacy Assessment Process in 2013, which facilitated the introduction of Basel III.

Standards such as Common Equity Tier I, Capital Conservation Buffer and Capital Surcharge for Domestic Systemically Important Banks will gradually come into effect between June 2017 and January 2019.

Common Equity Tier I is a minimum equity capital requirement, and the Capital Conservation Buffer will require banks to build additional equity capital to back lending growth. The Capital Surcharge for Domestic Systemically Important Banks results in further equity capital for large banks.