Question

Explain how new regulations, particularly BASEL II, has had an impact on how the banking organizations report leverage ratios, or the organization's profitability? Why do you believe these regulations are necessary?

Answer 1

Basel II is an international regulatory banking accord which stands on three basic pillars : minimum capital requirement, market discipline and regulatory supervision. Minimum capital requirement allows banks to maintain minimum capital ratios of regulatory capital over risk weighted assets. It maintains uniform standards of rules of regulations followed by the banks all across the globe. It provides a set disclosure requirements of capital adequacy of banks. Thus it provides guidelines to the banks all across the world to maintain minimum regulatory capital maintained by the banks and thus there is no scope of discrepancy amongst the various banks.

Such regulations are necessary to maintain uniformity and to determine the credit risk of assets held by financial institutions across various banking institutions.