Contrast Between

Basel II and Basel III

Contrast Between Basel II and Basel III

Basel II

Basel III

Three (3) Tiers of Capital i.e. Tier

1, Tier 2 Two and Tier 3.

Two (2) Tiers of Capital i.e. Tier 1 and

Tier 2.

Minimum CAR @10% of RWA and

Minimum Tier 1 @50% of CAR.

Minimum CAR @10% of RWA, Minimum

Tier 1 @6% of RWA and Minimum
Common Equity Tier 1 @4.5% of RWA .

Regulatory Deductions: 5-7

items

Regulatory Deductions: 11-14 items

(Goodwill, increase in equity from

securitization exposure,
Investments in unconsolidated
subsidiaries, Reciprocal holding,
Provision shortfall, deficit on
account of revaluation of
investments, Significant
investment in financial entities)

(Deductions in Basel II as well as

Deferred tax assets, Cash flow hedge
reserve, Defined benefit pension fund on
assets and liabilities, Investments in
own shares, Mortgage servicing rights,
Investments in the capital of financial
entities that are outside the scope of
regulatory consolidation)

Capital Conservation Buffer @2.5% of

RWA and Countercyclical Buffer @0%-

Contrast Between Basel II and Basel III

Basel II

Basel III
Tier 1 Capital:

Tier 1 Capital:
Paid up capital/capital
deposited with BB
Non-repayable share
premium account
Statutory Reserve
General Reserve
Retained Earnings
Minority Interest in
subsidiaries
Non-Cumulative
irredeemable Preference
Shares
Dividend Equalization
Account

1) Common Equity Tier- 1 (CET-1) Capital:

) Fully Paid-up Capital/Funds from HO for the
purpose of meeting the capital adequacy
) Non-repayable share premium account
) Statutory reserve
) General reserve
) Retained earnings
) Minority interest in subsidiaries.
) Dividend equalization reserve
) Actuarial gain/loss
) Non-repatriable interest-free funds from HO

2) Additional Tier- 1 (AT- 1) Capital:

Non-cumulative irredeemable preference
shares
Instruments issued by the banks that meet
the qualifying criteria for AT1

Contrast Between Basel II and Basel III

Basel II

Basel III

Deduction from Tier 1

Capital:
Book value of goodwill and
value of any contingent
assets
Shortfall in provisions
required against classified
loans
Shortfall in provisions
required against investment
in shares
Remaining deficit on
account of revaluation of
investments in securities
Reciprocal crossholdings of
bank capital/subordinated
debt Any investment
exceeding the approved limit
under section 26(2) of BCA,
1991.
Investments in subsidiaries
which are not consolidated 50%

1)Regulatory Adjustments for CET- 1 Capital:

Shortfall in provisions required against NPLs
Shortfall in provisions required against
investment in shares
Remaining
deficit on account of
revaluation of investments in securities
Goodwill & all other intangible assets
Deferred Tax Assets (DTA)
Defined benefit pension fund assets
Gain on sale related to securitization
transactions
Investment in own CET-1 Instruments/Shares
Reciprocal Crossholdings in the CET-1
Capital of Banking, Financial and Insurance
Entities
Any investment exceeding the
approved
limit under section 26(2) of BCA,
1991 (50% of Investment)
Investments in subsidiaries which are not
consolidated (50% of Investment)

Contrast Between Basel II and Basel III

Basel II

Basel III

Tier 2 Capital:
General provision (Unclassified
loans+ SMA + off Balance Sheet
exposure)
Revaluation reserve for fixed assets
up to 50%
Revaluation reserve for securities up
to 50%
Revaluation reserve for equity
instrument up to 10%
All other preference shares
Subordinated debt

Tier 2 Capital:
General Provision
All other preference shares
Subordinated debt
Minority Interest
Head Office (HO) borrowings in
foreign currency received that
meet the criteria of Tier 2 debt
capital
Other (if any item approved by
Bangladesh Bank)

Deductions:
Investments in subsidiaries which
are not consolidated (50% of
Investment)

Regulatory Adjustments:
Investment in own T-2
Instruments/Shares
Reciprocal crossholdings in the T-2
Capital of Banking, Financial and
Insurance Entities
Any investment exceeding the
approved limit under section 26(2)

Contrast Between Basel II and Basel III

Basel II
Tier 3 Capital:
Consisting of short-term subordinated
debt (maturity less than or equal to
five years, solely for the purpose
of meeting a proportion of the capital
requirements for market risk.

Basel III
Tier 3 Capital:
Abolished in Basel III

Leverage Ratio:

Introduction of Leverage Ratio:

There is no Leverage Ratio concept in

Basel III.

In order to avoid building-up

excessive on
and off-balance
sheet
leverage in the
banking
system, a simple, transparent, nonrisk based leverage ratio has been
introduced.
A minimum Tier 1 leverage ratio of
3% is being prescribed both at solo
and consolidated level.

Contrast Between Basel II and Basel III