Banks on the outskirts of «Basel 4»
Banks on the outskirts of «Basel 4»
April 13, 2016
While regulations «Basel 3» is still being implemented by many countries in the world, with full implementation of the agreement would not impose only after another three years, It has issued a «Basel Committee» Banking Supervision in January 14 (January) 2016 to the needs of its own money to the top of the revised market risk. Also known as the fundamental criterion for the revision Trading portfolios. Here quasi agreement in meetings that these revisions could lead to what has become known as «Basel 4».
And market risks (Market Risk) are those that arise from the bullish trends and downward by changes on the capital market as a result of a lot of reasons that affect the expected and required rate on investment earnings and cash flows, whether it is affecting the reasons in their own country or in other countries linked by the country in question and close ties.
And market risks arising from the losses resulting from the sites contained within or outside of the budget, resulting from movements in the market price of assets. Consequently, the market risks are those related to changes in the value of securities or transactions as a result of the inclusion of exposure operations on the markets of the commercial and banking records of the bank. It also arises from movements in interest rates or foreign exchange, or stock, or goods markets. It has exposed a single transaction, or one of the many dangers such as the risk of interest rates, foreign exchange, equities and risks of goods, and other financial product. And adopt the philosophy of management at the bank to identify the different levels and follow-up and management in order to protect the assets and income streams values, including protecting the interests of depositors and bank shareholders, while working to expand shareholder returns. Bank is keen on enhancing shareholder returns while providing protection from exposure to hazards in the framework of the standards set by the bank.
For the requirements of regulatory capital to these concerns in the market, banks typically use the internal model method based on the VaR model, adopted by the central banks.
It is clear that the aim of this new review is to adjust the treatment of fears in the market and standardization in the various countries and jurisdictions in the world, by making the calculation model more sensitive to the actual risks involved in trading portfolios. The amendments also aim to form the largest chapter in the finance business and business trading in securities, real estate and others. And thus discourage investment banks risk excessively in their own books, which relate to the Governor of trade for its own account. Experts believe that the new amendments aimed at forcing banks and investment, including in particular on the development of adequate needs of the capital in exchange for these threats in the market.
According to estimates by «Basel Committee» Banking Supervision, these amendments will result in the imposition of substantial increases in capital needs. On average, the Commission believes that there will be a need to increase funding by 22 percent. Committee banks to work on reducing these needs through the revision of the governor of trading has called. These revisions have been forced to capital market oriented threats increased by 41 percent, but for some banks, the increase may be up to 800 percent.
Without going into the technical aspects of the new proposals, it is in the form of a year focused on three main issues. The first issue is raising capital to meet with the governor of the trading in the bank’s records. This will make the banks to trade for their own account in securities, commodities, real estate and other more costly.
The second issue is how to unite the risks weighted assets calculated (RWA-s) and to eliminate existing differences. There are many who believe that this consolidation will have a negative impact on risk management, as there are legitimate reasons for the differences in the weighted assets in different countries is calculated.
The third issue are revisions in the calculation of operational concerns and the head of the dedicated money.
These proposals are still in the early discussion, and there is a lot of uncertainty among major international banks would adopt more regulations and requiring more capital over the enormous the increases that have been implemented under the regulations «Basel 3» over the past years. But at the same time we believe that such adjustments necessary in the long term, and on the Arab banks brace for more global regulatory legislation that is trying to protect the global financial system.
And great confidence that more Arab banks will not be affected by these policies, as the work of these banks in the field of Trading portfolios are very few.
Adnan Ahmed Yousif