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1954, government appointed G.M. Watson of Bank of England & Sir Sydney Caine, Vice
Chancellor of University Malaya to advise on the model of central banking.
The law requires the annual account to be audited by Auditor General of Malaysia. A report to be
published yearly before end of March
The Central Bank of Malaysia Act 2009 (The Act) came into force towards
the end of 2009. With this, the Central Bank of Malaysia Act 1958 is
repealed and thus, ceases to apply.
The Act will enable Bank Negara Malaysia to more effectively manage
emerging risks and challenges in performing its role and responsibilities
as the nation's central bank.
Financial Market comprises four major markets:- Money & foreign Exchange Market
- Capital Market
- Derivatives Market &
- Offshore market
enforced by the
Lesson 3
market operation
It is the process of buying and selling of government securities by the central bank in order
to influence the money supply. The buying and selling activities of government securities will
increase or decrease the assets of the central bank.
2. Foreign exchange intervention
It is the transaction of buying and selling of foreign currency reserves by the central bank.
3. Discount loan
Discount loan is the loan provided by the central bank to commercial banks.
4. Withdrawal of deposits by depositors
It is the decision made by depositors to withdraw their money from the banks and this will
affect the excess reserves of the commercial banks.
Commercial Banks
Mobilizing surplus funds in the economy.
Offering transaction accounts like savings account, current
account and fixed deposit.
Offering payment system: Local and overseas e.g ATM and TT.
Offering loans and financing for economic growth.
Miscellaneous financial services: Credit card, insurance and
mutual funds.
Lesson 3
Investment Banks
Lesson 3
Islamic Banking
Same as conventional commercial and investment
banking except based on Syariah principles of mutual
risk and profit sharing between parties, the assurance
of fairness for all parties involved and transactions
dedicated to assets or underlying business activities.
Activities such as gambling (masir), speculation
(gharar) and those that involve interest (riba) are not
allowed.
Lesson 3
Lesson 3
Lesson 3
Large exposures restrictions (single customer limit not more than 5% of bank's
total capital
Basel 1
Basel I, that is, the 1988 Basel Accord, is primarily focused on credit risk and appropriate riskweighting of assets. Assets of banks were classified and grouped in five categories according to
credit risk, carrying risk weights of :
20% (securitisations such as mortgage-backed securities (MBS) with the highest AAA rating),
100% (for example, most corporate debt), and some assets given No rating.
Banks with an international presence are required to hold capital equal to 8% of their
Basel I & II
The first Basel Accord, known as Basel I, was issued in 1988 and focuses
on the capital adequacy of financial institutions. The capital adequacy risk, (the
risk that a financial institution will be hurt by an unexpected loss), categorizes
the assets of financial institution into five risk categories (0%, 10%, 20%, 50%,
100%). Banks that operate internationally are required to have a risk weight of
8% or less.
The second Basel Accord, known as Basel II, is to be fully implemented by
2015. It focuses on three main areas, including minimum capital requirements,
supervisory review and market discipline, which are known as the three pillars.
The focus of this accord is to strengthen international banking requirements as
well as to supervise and enforce these requirements.
First Pillar
The first pillar deals with maintenance of
regulatory capital calculated for three major
components of risk that a bank faces:
credit risk,
operational risk and
market risk.
Other risks are not considered fully quantifiable at
this stage.
Second Pillar
The second pillar deals with the regulatory response to
the first pillar, giving regulators much improved tools
over those available to them under Basel I.
It also provides a framework for dealing with all the other
risks a bank may face, such as systemic risk, pension
risk, concentration risk, strategic risk, reputation risk,
liquidity risk and legal risk, which the accord combines
under the title of residual risk.
It gives banks a power to review their risk management
system.
Third Pillar
The third pillar deals with transparency and
the obligation of banks to disclose
meaningful information to all stakeholders.
Clients and shareholders should have a
sufficient understanding of the activities of
banks, and the way they manage their risks.