$**$Case Study: Basel Committee on Banking Supervision$**$

The Basel Committee on Banking Supervision $($BCBS$)$ is a global standard$-$setting body that plays a crucial role in promoting the stability and resilience of the international banking system. Established in $1974$ by the central bank governors of the Group of Ten countries, the BCBS has since expanded its membership to include central banks and banking supervisory authorities from around the world.

$**$Background:$**$

The BCBS was formed in response to concerns about the soundness and stability of the banking sector following a series of banking crises in the early $1970$s$.$ Its primary objective is to develop and promote international standards for banking regulation and supervision to enhance the safety and soundness of banks and mitigate systemic risks.

$**$Key Functions and Responsibilities:$**$

$1.**$Development of Basel Accords:$**$ The BCBS is responsible for developing and revising the Basel Accords, which are sets of international standards for banking regulation. The most notable accords are Basel I, Basel II$,$ and Basel III, each of which introduces new requirements and improvements to strengthen the resilience of banks.

$2.**$Setting Capital Adequacy Requirements:$**$ One of the core functions of the BCBS is to establish capital adequacy requirements for banks, ensuring that they maintain sufficient capital to absorb losses and withstand financial shocks. Basel III, for example, introduced more stringent capital requirements and enhanced risk$-$based capital ratios.

$3.**$Promotion of Sound Risk Management Practices:$**$ The BCBS promotes sound risk management practices among banks, including the measurement and management of credit risk, market risk, and operational risk. It issues guidelines and recommendations on risk management frameworks, stress testing, and risk governance.

$4.**$Enhancement of Liquidity Standards:$**$ In response to the global financial crisis of $2007-2008,$ the BCBS developed liquidity standards under Basel III to address liquidity risk and improve the resilience of banks during periods of stress. These standards include the Liquidity Coverage Ratio $($LCR$)$ and the Net Stable Funding Ratio $($NSFR$).$

$5.**$Monitoring Implementation and Compliance:$**$ The BCBS monitors the implementation of its standards by member jurisdictions and assesses compliance with international banking regulations. It conducts peer reviews and assessments to ensure consistent application of the Basel Accords across different countries.

$**$Objective Question:$**$

Which of the following is a primary responsibility of the Basel Committee on Banking Supervision $($BCBS$)?$

A$)$ Conducting monetary policy

B$)$ Issuing accounting standards for multinational corporations

C$)$ Setting capital adequacy requirements for banks

D$)$ Regulating stock exchanges