DJ: DID YOU KNOW ??
We see a lot of chatter and reference to the Basel Accords with respect to banks having to be Basel IV (also referred to as Basel 3.1) compliant in order for the GCR to go through. But what exactly does that mean? How is it relevant for a GCR to implement? Has it been Implemented and when?
First a brief history and statistics. In 1974 The Basel Committee on Banking Supervision (BCBS) was formed. It brought together central banks and bank regulators around the world to formulate rules for more effective international bank supervision.
There are currently 45 members from 28 countries that make up the BCBS. ( All BRICS nations sit on the BCBS) members are The BCBS basically works for the Bank of International Settlements (BIS). The BIS is owned by 63 central banks that control 95% of the global GDP (there are 200 plus central banks globally)
Basel IV is the latest in a series of accords intended to bring greater stabilization and stability to the worldwide banking systems. It began in 1988 with Basel 1, requiring banks to hold 8% of their risk to weighted assets or RWA (which is a ratio of how much they can loan out compared to how much assets they have to hold to do the loans) by the end of 1992 .
Adjustments were made to that framework and introduced in 2004 with Basel II which required the banks to maintain a reserve of 8% but at least half of that (4%) had to be Tier 1 capital ( like gold). After the worldwide financial crisis of 2007-2008 showed the risk-mitigation measure of Basels 1 and II to be inadequate, the Committee started work on Basel III , which began in 2009 and was originally scheduled to begin implementation by a target date of 2015.
The target date was pushed to Jan 1st 2022 and then pushed to Jan 1st 2023. According to the BIS website Basel IV (3.1) is currently active (except for the production base, which is phased and will only take full effect on Jan 1st, 2027)
Among other changes , Basel III increased the Tier 1 capital requirements from 4% to 6% raising the total capital requirements to as much as 13%. Basel III emphasized that these Tier 1 capital requirements should be kept in gold. Basel IV is the final reform of Basel III.
Of the 45 members from 28 countries that make up the BCBS, Vietnam, Zimbabwe and Iraq are not among them or represented (Indonesia is a committee member) And these are the main currencies of value in the GCR. If these countries want their currencies to be accepted and mingle with global banking ( Which controls 95% of the global banking system) they must adopt the Basel Accords. Understand that adapting the Basel Accords is voluntary and once adopted, must follow the criteria laid out in the accord.
Vietnam has proactively piloted Basel III and Basel IV. Zimbabwe adopted Basel 1 in 1995, Basel II in 2021 and Basel III in 2019 but are muddling through achieving compliance. Most of the private banks in Iraq are not interested in complying with the risk-weighted asset (RWA) requirements in Basel III and now Basel IV.
Indonesia is in, Vietnam is in, Zimbabwe is working on it but Iraq is fighting it. If the IQD is to exchange globally and co-mingle with global banking they have to adopt Basel IV (3.1) and that has not happened yet.
If you want to educate yourself go to bis.org and download the Basel Framework pdf. It’s 1879 pages and details the standards for just about every banking function.
DJ
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