Page 42 - Azerbaijan State University of Economics

Nigar Huseynlı: Basel Standards And Theır Applıcatıon

Although the Basel Committee does not have an official legal status or authority, it

is an organization to which the public institutions of the relevant countries are

members. The standards and principles established by the Committee are largely
effective soft-laws and are accepted worldwide. Most of the Basel Committee
recommendations have been taken into account in regulatory work by the European
Parliament and the Council.

Meets Basel II minimum capital requirements. Basel II focuses on providing
adequate protection by grouping the risk a bank faces into three main components.
The three main risk components of Basel II standards are: Credit Risk, Operational
Risk and Market Risk (IBM, 2018).

Basel-II criteria especially aggravate the lending conditions of banks and impose
heavy conditions on businesses in terms of collateral. Businesses that fulfill these
conditions will be able to find loans more easily and with lower interest. Businesses
that have difficulty in meeting the conditions will be able to get the loan by giving
more collateral and naturally with higher interest.

There are three different approaches to operational risk:

1) Basic Indicator Approach (BIA)

2) Standard Approach (STA)

3) Internal measurement approach.

The preferred approach for market risk is Value at Risk (VAR). The proposal of Basel
II is to be phased in for each bank. Risk measurement systems organized by the banks
themselves are applied for low risk levels. The Basel II regulation also has a title
called audit. Under this heading are audit issues related to liquidity risk, pension risk,
concentration risk, strategic risk, reputational risk, systemic risk and legal risk.

The Basel II standards have a title called market discipline. This chapter discusses
the application areas of market participants, their capital risks, the operation of risk
assessment processes and the evaluation of the most basic information about the
capital adequacy levels of the institution. Market discipline provides explanations
based on a general framework. It effectively informs the bank when the market is
exposed to these risks and provides a consistent and comprehensible disclosure
framework that enhances comparability. Disclosures must be made no less than twice
a year (IBM, 2018).

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