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lec 7 - Coggle Diagram
lec 7
- Central Bank Digital Currency (CBDC)
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- Banks accept deposit from the general public and raise capital from the financial markets through debt and equity.
- Lending activity exposes banks to different risks, which can lead to bank failures and loss of depositor's wealth.
- Basel norms are provisions to tackle the risk of bank failures and maintain a sound financial system.
- Basel Committee on Banking Supervision (BCBS) formulates supervisory standards and guidelines.
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- Defined capital and risk weights for banks
- Minimum capital requirement of 8% of risk-weighted assets
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- Based on three pillars: Capital Adequacy Requirements, Supervisory Review, and Market Discipline
- Emphasized better risk management techniques
- Increased disclosure requirements
- Released in 2010 in response to the 2008 financial crisis
- Aimed to strengthen the banking system
- Focused on four vital parameters: capital, leverage/debt, funding, and liquidity
- Objectives: absorb shocks, improve risk management, strengthen transparency and disclosure
- Capital to Risk Weighted Asset Ratio (CRAR)
- Calculation example for two banks (Bank 1 and Bank 2)
- CRAR determines the safety of bank deposits
- Higher CRAR indicates higher safety for depositors
- Recapitalization of PSBs (Public Sector Banks)
- Govt.'s efforts to increase the capital adequacy ratio
- Recapitalization methods: budgetary resources and recapitalization bonds
- Foreign Currency Assets (FCA)
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- Deposits with Central Banks
- Interest on govt. bonds/securities
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- Commission/income as Debt Manager
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- Not issued by Govt. or RBI
- Encryption techniques and mining
- Value determination and impact
- Taxation and TDS on asset transfer
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- Usage in welfare programs
- Features and accessibility
- Limitations and tracking capabilities
- Economic Capital Framework (ECF)
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- Transferring income to government
- Yearly addition to capital reserve
- Bimal Jalan Committee recommendations
- Maintaining Contingency Risk Buffer