Bank Regulatory Framework and Earning Power

BANK REGULATORY FRAMEWORK AND EARNING POWER 1
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BANK REGULATORY FRAMEWORK AND EARNING POWER 2
EXECUTIVE SUMMARY
The purpose of this report is to analyze whether regulatory environment that various financial
institutions such as banks act as hindrance to the profitability of these banks since they
emphasize so much on lending to only a few customers who are perceived to be less risky.it also
aims at examining the fact that raising capital to the required level by banks can help them
manage risk associated to lending. When banks raise meets their capital requirements, they then
concentrate much on improving the quality of their loans.
According to BASEL III regulations, banks should guard themselves from strategic risk. The
purpose of this report therefore is to define that risk and proposes a way to estimate economic
capital requirements.
Financial institutions like banks provide key support to the entire economy. For sound and stable
economic growth, there must be a stability in the banking system of a country. Just like any other
business that operates in an economy, banks are much more exposed to a lot of risks.

BANK REGULATORY FRAMEWORK AND EARNING POWER 3
Table of Contents
1.0 INTRODUCTION.....................................................................................................................3
2.0 OVERVIEW OF THE REGULATORY FRAMEWORK........................................................4
2.1 Basel accord regulatory framework(bank of international settlements)................................4
3.0 APPROACH TO CREDIT RISK..............................................................................................5
4.0 CVA RISK FRAMEWORK......................................................................................................5
5.0 REVISION OF CVA FRAMEWORK......................................................................................5
6.0 OPERATIONAL RISK FRAMEWORK..................................................................................6
7.0 INTERNAL RATING APPROACH.........................................................................................6
8.0 BANKING THEORY................................................................................................................6
9.0 FEATURES AND CONSEQUENCES OF REGULATIORY FRAMEWORK ON
LENDING AND EARNING POWER OF BANKS.......................................................................7
10.0 RESPONSE OF BANKS TO REGULATIONS.....................................................................7
11.0 CONCLUSION........................................................................................................................8
12.0 REFERENCES......................................................................................................................10