Basel is known to be a beautiful quiet city and one of the most culturally rich centers in Switzerland. It has very often been a place for quiet negotiations and held many international meetings. Basel is located at the meeting point of France, Germany and Switzerland. The Swiss chemical industry operates from Basel and it also has a large pharmaceutical industry.
BIS controls the capital adequacy ratios in banks and encourages reserve transparency. These functions are required to keep economies stable in member countries by avoiding bank runs and economic crises as “bad money drives out good” (Gresham’s Law).Sometimes reaching a consensus seems difficult since every country has its own agendas, policies and financial resources. Monetary policies are based in every country and affects foreign exchange rates and exports of the country.Altering these monetary policies along with the BIS guidelines can be difficult in times when customers have loss confidence in nation’s banks. Developing countries are more prone to huge losses in such cases for the simple reason that they tend to be more industry or region focus. For e.g. the United States divided federal monetary management into nine regions, in which the less-developed western United States had looser policies.
The BIS sets “requirements on two categories of capital,tier one capital and total capital.
When a bank creates a deposit to fund a loan, its assets and liabilities increase equally, with no increase in equity. That causes its capital ratio to drop. Thus the capital requirement limits the total amount of credit that a bank may issue. It is important to note that the capital requirement applies to assets while the bank reserve requirement applies to liabilities.
The BIS provides the Basel Committee on Banking Supervision with its 17-member secretariat, and has played a central role in establishing the Basel Capital Accords of 1988 and 2004 (famously known as Basel I and Basel II). Significant differences remain between United States,EU and UN officials regarding the degree of capital adequacy and reserve controls that global banking now requires.
By having a global exposure, it is important for central banks to take quick actions and not go for the ‘wait and watch’ policy because that delay leads to billions of losses and indirectly affect the taxpayer while the big banks get bailed out or made to pay fines.
© 2012 Deena Zaidi. All rights reserved.