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Monday, March 24, 2014

Sachin Karpe Explains the Fundamental Principles of a Sound Banking System?

 Sachin Karpe, Sound Banking System

Sachin Karpe talks about the fundamental principles of a sound banking system. A sound banking system must have a heavy handed regulator that enforces a number of best practices upon the supervised banks. This regulator is usually a Central Bank, such as the FED. These best practices are, in sum: 1. Asset/Liability pricing at market levels ensures banks' numbers reflect the current reality/ health of their finances. 2. Controls: banks must monitor their activities, liquidity and solvency daily. They must have sound systems and controls in place. 3. Capitalization: Regulators must ensure banks hold enough capital to absorb potential losses. The capitalization handbook is the Basel regulation, that establishes leverage levels for all banks worldwide. 4. Risk Controls: Banks must manage risk exposures pro-actively. Mr. Karpe also adds on the market side, this means measuring value-at-risk, stress testing portfolios, etc. On the credit side, it must analyse and monitor clients constantly, and provision losses based on credit ratings and probabilities of default says Sachin Karpe.


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