Basel Accord is risk-based capital and has a series of three banking regulation agreements

U5 Responses

There are 4 responses. Read each response and write a 75-word-100-word response for each.

Response 1.) Deborah

Basel Accord is risk-based capital and has a series of three banking regulation agreements (Investopedia). The Basel Accords were defined in our PowerPoint point presentation. Basel Accord 1 links capital requirements for large international banks. Basel Accord 2 focuses on strengthening the supervisory process. Basel Accord 3 focuses on improving market discipline. The limitations of Basel 1 and Basel 2 are hardships in assessing all risks, the discrepancy in losses, and data constraints in designing credit risk.

Basel 3 attempts to address these limitations by creating new rules on the handling of credit ratings and requires firms to have contact with more balanced financing to gain liquidity.

References:

Chen, James. Investopedia (2021) Basel Accord

Pearson. The Economics of Money, Banking, and Financial Markets. Business School Edition,

Fifth Edition. Chapter 10, Economic Analysis of Financial Regulation

Response 2.) Tomeka

Basel Accords refer to a series of three international banking regulatory meetings that established capital requirements and risk measurements for global banks. The Basel Accords consist of three sequential banking regulation agreements set by the Basel Committee on Bank Supervision (Chen, 2021).

Basel I is a set of international bank regulations that established minimum capital reserve requirements for financial institutions. Some of the limitations of Basel 1 are:

The static measure of default risk
Credit risk differentiation is limited
Broad-brush risk weighting structure
The constant and concrete action of default risk
Basel 2 is a set of banking regulations put forth by the Basel Committee on Bank Supervision, regulating finance and banking internationally. Some of Basel 2 Limitations are:

Complicated risk evaluation method
The internal rating method is complex.
Basel 3 requires banks to have a minimum amount of common equity and a minimum liquidity ratio. Basel 3 also includes additional requirements for financial institutions that are considered too big to fail (Mishkin, 2019). In doing so, it got rid of tier 3 capital considerations.

Reference

Chen, J. (2021, March 10). Basel accord. Investopedia. https://www.investopedia.com/terms/b/basel_accord.asp (Links to an external site.)

Mishkin, F. (2019). BUS720-Unit 5-Chapter 10, Economic analysis of financial regulations.pdf [PowerPoint slides p. 7]. Pearson Education, Inc. /courses/35449/files/2506478

Response 3.) Mary

Yes, absolutely because it holds 70% of all the public deposits of the United States the bank is considered too big to fail. There would be a sufficient amount of capital and a good capital adequacy ratio available with this bank. If there is no default on obligation and liquidity is maintained enough then we can say it is a good sign of growth. The ratio to determine the performance of a bank is measured by the capital adequacy ratio, liquidity ratio, and portfolio quality which has a set base for quality standards. Deuteronomy 6:2 “that you may fear the Lord your God, you and your sons and your son’s son, by keeping all his statutes and commandments, which I command you, all the days of your life, and that your days may be long”.

Nowadays, It is being observed that mergers and acquisitions are being experienced on a large level. It is an indicator that the industry is becoming competitive and there is no monopoly in the market. M & A result in financial gains and Synergy. The combined entity will have economies of scale and a positive impact on its profitability. The scenario points to the market situation and necessary steps to be taken to maintain the economy unaffected by recession and inflation to act as a safety net.

Reference

Holy Bible

Response 4.) Deborah

Suppose that after a few mergers and acquisitions, only one bank holds 70% of all deposits in the United States. Would you say that this bank would be considered too big to fail? First off, a merger is an agreement that unites two existing companies into one new company, and acquisition is when one company purchases most or all of another company’s shares to gain control of that company. (Kenton, Will). Secondly, the bank is not too big to fail. When the bank fails, the FDIC will step in to stop the bank from going into bankruptcy. Even though the bank is holding 70% they will still be able to deal with a sizable region. This tells us that economic mergers will shock the economy in a bad way, and it should be different companies authorized to be able to hold deposits.

References:

Kenton, Will. Investopedia. Mergers and Acquisition

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