Basel norms

 Basel norms refer to a set of banking regulations developed by the Basel Committee on Banking Supervision (BCBS). The aim of these regulations is to promote stability and integrity in the global financial system by establishing minimum capital requirements for banks and other financial institutions.

Basel III is the latest set of regulations that have been developed by the BCBS. It has three main components:

1. Minimum capital requirements
2. Supervisory review process
3. Market discipline.

The first component of Basel III, minimum capital requirements, has three tiers. Tier 1 capital includes common equity, retained earnings, and other qualifying instruments that can absorb losses without the bank becoming insolvent. Tier 2 capital includes instruments such as subordinated debt that can absorb losses in the event of a bank's failure. Finally, Tier 3 capital includes short-term subordinated debt that can be used to meet liquidity needs.

The Common Equity Tier 1 (CET1) ratio is a measure of a bank's core equity capital relative to its risk-weighted assets. It is considered the most important measure of a bank's financial strength and ability to absorb losses. Under Basel III, banks are required to maintain a minimum CET1 ratio of 4.5%. However, many banks maintain higher CET1 ratios to demonstrate their financial strength and stability to investors and regulators.