Impact analysis of the proposed Basel III norms on Indian and foreign banks

Abstract

The Basel Committee was established as the Committee on Banking Regulations and Supervisory Practices by the central-bank Governors of the Group of Ten countries at the end of 1974 in the aftermath of serious disturbances in international currency and banking markets. These disturbances culminated in the liquidation of Herstatt Bank in Cologne, Germany due to settlement risk in the Deutsche Mark-USD currency market. This prompted the need to plug lacunae in international supervision of financial systems which prompted G-10 countries to form the committee under the aegis of the Bank for International Settlements in its headquarters at Basel, Switzerland. The committee provided a forum for regular cooperative dialogue between its member countries on supervisory matters related to banks. Initially, it discussed modalities for international cooperation in order to close gaps in the supervisory net, but its wider objective has been to improve supervisory understanding and the quality of banking supervision worldwide. It seeks to do this in three principal ways: 1. By exchanging information on national supervisory arrangements. 2. By improving the effectiveness of techniques for supervising international banking business. 3. By setting minimum supervisory standards in areas where they are considered desirable. The Committee currently consists of members from Argentina, Australia, Belgium, Brazil, Canada, China, France, Germany, Hong Kong SAR, India, Indonesia, Italy, Japan, Korea, Luxembourg, Mexico, the Netherlands, Russia, Saudi Arabia, Singapore, South Africa, Spain, Sweden, Switzerland, Turkey, the United Kingdom and the United States. Countries are represented by their central bank or the authority with formal responsibility for the prudential supervision of banks in the absence of a central bank. The Committee does not possess any formal supranational supervisory authority, and its conclusions do not, and were never intended to, have legal force. Rather, it formulates broad supervisory standards and guidelines and recommends statements of best practice in the expectation that individual authorities will take steps to implement them through detailed arrangements - statutory or otherwise - which are best suited to their own national systems. In this way, the Committee encourages convergence towards common approaches and common standards without attempting detailed harmonization of member countries' supervisory techniques. As an outcome of the ongoing collaboration in the supervision of international banks, the Committee has addressed a number of related topics. It has collected information on most national systems for supervising banks' foreign establishments; it has examined the obstacles to effective supervision arising from bank secrecy regulations in different countries; and it has studied authorization procedures for new foreign banking establishments.