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Risk Management In Banking Essay

9309 words - 38 pages

CHAPTER I:

INTRODUCTION

1. THEME OF THE STUDY

Risk management underscores the fact that the survival of an organization depends heavily on its capabilities to anticipate and prepare for the change rather than just waiting for the change and react to it. The objective of risk management is not to prohibit or prevent risk taking activity, but to ensure that the risks are consciously taken with full knowledge, purpose and clear understanding so that it can be measured and mitigated. It also prevents an institution from suffering unacceptable loss causing an institution to suffer or materially damage its competitive position. Functions of risk management should actually be bank ...view middle of the document...

3 STUDY PROBLEM

Basel II norms came as an attempt to reduce the gap in point of views between conflict practices. Therefore, the implementation of those resolutions emerged by the banks. Regarding this issue the survey has been made.

Study problem can be stated as follows:
To what extent banks have implemented Basel II norms related to enhancing internal control in the banks?

1.4 OBJECTIVES

← Covering different aspects of risk assessment
← Identifying keys for effective risk management
← To understand the challenges and impact of Implementing Basel II
← To analyze the current progress of Basel II in Hubli.

1.5 METHODOLOGY

← Literature Review
← Data collection
← Primary information: Personal interview/ Questionnaire
← Secondary information: Through internet, Manuals, Journals, Audit/Annual reports
← The Benefits and limitation of Basel II
← The Challenges of Implementing Basel II
← Impact of Basel II
← Research method
← Findings and suggestions
← Conclusion

CHAPTER II:
LITRETURE REVIEW

2.1 INTRODUCTION

Basel I Accord: The Basel Committee on Banking Supervision, which came into existence in 1974, volunteered to develop a framework for sound banking practices internationally. In 1988 the full set of recommendations was documented and given to the Central banks of the countries for implementation to suit their national systems. This is called the Basel Capital Accord or Basel I Accord. It provided level playing field by stipulating the amount of capital that needs to be maintained by internationally active banks.

Basel II Accord: Banking has changed dramatically since the Basel I document of 1988. Advances in risk management and the increasing complexity of financial activities / instruments (like options, hybrid securities etc.) prompted international supervisors to review the appropriateness of regulatory capital standards under Basel I. To meet this requirement, the Basel I accord was amended and refined, which came out as the Basel II accord.

The new proposal is based on three mutually reinforcing pillars that allow banks and supervisors to evaluate properly the various risks that banks have to face and realign regulatory capital more closely with underlying risks. Each of these three pillars has risk mitigation as its central board. The new risk sensitive approach seeks to strengthen the safety and soundness of the industry by focusing on:

● Risk based capital (Pillar 1)
● Risk based supervision (Pillar 2)
● Risk disclosure to enforce market discipline (Pillar 3)

2.2 BASEL II FRAMEWORK

The new proposal is based on three mutually reinforcing pillars that allow banks and supervisors to evaluate properly the various risks that banks face and realign regulatory capital more closely with underlying risks.

Basel II
Framework

Pillar I Pillar...

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