UPSC Prelims 2007 Q96: Indian Economy – Banking & Financial Sector

UPSC Prelims 2007, General Studies Paper I · Indian Economy

Basel II relates to which one of the following?

Answer: (d) International standards for measuring the adequacy of a bank’s capital

Explanation

Basel norms — bank capital standards

Accord	Year	Main idea
Basel I	1988	Minimum capital = 8% of risk-weighted assets; focus on credit risk
Basel II	2004	Three Pillars — Capital, Supervisory Review, Market Discipline
Basel III	2010	Higher-quality capital, capital conservation buffer, leverage ratio, LCR/NSFR liquidity rules

Basel II pillars:

1. Minimum capital — for credit, market and operational risk.

2. Supervisory review — regulator checks risk management.

3. Market discipline — disclosure to the public.

The norms come from the Basel Committee on Banking Supervision (BCBS) at the Bank for International Settlements (BIS), Basel, Switzerland.

India's banks moved to Basel II in 2008-09.

Answer: (d) International standards for measuring the adequacy of a bank's capital.

(a) Incorrect. Civil aviation safety standards come from ICAO (Chicago Convention).
(b) Incorrect. The key cybercrime treaty is the Budapest Convention (2001).
(c) Incorrect. Anti-doping is handled by WADA.
(d) CORRECT. Basel II (2004) sets international capital adequacy standards for banks.

Basel norms = bank capital adequacy (BCBS at BIS, Basel). Basel II = 3 pillars; Basel III = buffers + liquidity.

Basel II = international standards for bank capital adequacy.

Confusing the Basel Convention (hazardous waste, 1989) with Basel norms (banking).
Thinking Basel norms are binding treaties — they are recommendations adopted by national regulators (RBI in India).
Forgetting that operational risk was added only in Basel II.

'Basel' trap: Basel Convention = waste; Basel norms = banks. Same city, different subjects.