The Home Depot-Leadership in Crisis Management Essay Example for Free

The Home Depot-Leadership in Crisis Management Essay The Home Depot: Leadership in Crisis Management Introduction Established in 1979, The Home Depot has proved to be a leading retail company founded upon providing excellent products at competitive prices sold from knowledgeable sales representatives. Through this concept, The Home Depot has dominated both professional and do-it-yourself sales across the world. In 1992, The Home Depot was faced with a new challenge. Hurricane Andrew struck with vengeance and devastated 75,000 homes across Florida. Since 10% of The Home Depot’s stores were located in Florida, this quickly became a corporate emergency. The Home Depot stepped up to the challenge and stood behind their customers. Depot froze prices for supplies the community would need to rebuild or even sold products at costs in some cases. Then-CEO Bernie Marcus stated â€Å"This is not a time to make money on the back of other people’s misfortune† (Herman). This attitude proved prosperous for The Home Depot when profits increased 44%. With this eye opening experience, The Home Depot decided to take further actions to prepare their employees and customers for future hurricanes. Paul Raines was hired by The Home Depot and eventually was made the Divisional Leader for the Southern Region. His experience in the third world countries made him the perfect candidate to lead Depots crisis management project. When 2004 rolled around, Florida was viscously attacked with four storms in a seven week period. Through the devastation, The Home Depot utilized this period as a learning tool. The storms of 2004 developed three main â€Å"Crisis Management† concepts for The Home Depots: speed, preparedness, and chain of command. Speed was crucial for the community and The Home Depot strived to open as swiftly as possible after the storms ceased. The Home Depot stayed ahead of the storms by having a surplus of storm relief inventory, as well as workers close enough to be called upon when the major threats had passed. Finally, the employees of The Home Depot understood who was in charge and calling the shots. From these concepts a â€Å"Crisis Command Center† was born for category two hurricanes or worse. The Command Center consisted of conference rooms where representatives could meet and develop a plan of attack. With the click of a mouse they were able to determine what their customer’s main needs were. The main goal of the Command Center was to insure employee safety, re-open stores, and make sure computer systems were accurately working which included pay roll and cash registers. In 2005 the Command Center was put to the test when Hurricane Katrina attacked the Gulf Coast. The Home Depot began preparations well in advance and was ready to reopen stores as soon as possible after the storm had passed. Managers worked eighteen hours a day, which paid off when of the thirty-three stores in Katrina’s path all but ten opened the following day. With such an elaborate Command Center and well informed staff, The Home Depot was able to provide the communities with the supplies they needed to begin rebuilding their homes (Herman). In 2007, a new crisis was thrown at The Home Depot. This predicament was far more personal than any storm could ever be. Columnist Scott Burns verbally attacked The Home Depot in a published article on MSN. com. Customer service, products, inventory, and cleanliness were all under attack by disgruntled customers. In a short period of time, there were over 7,000 posts and 10,000 emails of customer complaints. Corporate Officials were outraged over the online posts. This was a delicate situation that needed to be dealt with. Official’s feared making a public statement would draw media attention to the article which had not yet been a hot topic for the television. Then CEO Frank Blake, felt he had no choice but to respond on the MSN post board. He made a lengthy apology to all disgruntled bloggers. He pleaded for all concerns to be forwarded to a private email account. He vowed to improve upon these negative insights and hoped to once again regain their trust. As Blake assumed, the media went crazy and picked up the article. Blake decided to utilize the Crisis Management plan to handle their current reputational attack (Herman). At the current time, the main issues faced by the â€Å"Command Center† were natural disasters such as hurricanes. From the Crisis Management Command Center, The Home Depot had found the key to success when handling natural disasters: speed, preparedness, and a clear chain of command. Utilizing these tools, The Home Depot had developed a great starting point for handling their Reputational Crisis. The Home Depots crisis management skills were analyzed in a SWOT analysis, which can be viewed in appendix A. In mainstream media, the public tends to remember the negative and forget the positive. Regardless of how many wonderful things The Home Depot had done for the community, the current reputational attack was going to be remembered the most. Blake’s swift response was both beneficial and harmful to The Home Depot in my opinion. I agree the Home Depot needed to respond quickly to the article; however, I feel they should have brought the media’s attention to the article through a press conference rather than by a post on a message board. If The Home Depot had made a verbal response, they could have put their own spin on the article. Blake’s apology was a good tactic which could have been carried over to a verbal response. Reputational attacks are bound to happen to major companies and The Home Depot needs to learn from this and be prepared to respond through positive publicity. Ways to accomplish this would be through donations, charity events, sales, or other generous acts which would benefit the community. These acts could help cover reputational attacks. The Home Depot also needs be prepared with the proper chain of command to respond to situations like these (Herman). Analysis: Decision Making Biases The Home Depots reputation crisis presented several decision making biases which involved crisis management situations where decisions had to be made under uncertainty. These biases included overconfidence, inertia, selective perception, representation, and self-serving biases. The overconfidence bias was based on the illusion that a company was superior to its competition, allowing the company to focus on successes and forget the situations where failures occurred. The Home Depot most likely assumed they were one step ahead of the competition. This assumption led them to believe their customers also felt The Home Depot was a superior company. Unfortunately, this was not the case and was revealed through the MSN article. The inertia bias was based upon the term procrastination which demonstrates when a projects immediate effect is unpleasant; a company will delay the project even if the long term reward outweighs the immediate negative effect. Essentially, this was a probable cause why The Home Depot postponed improving upon customer service, products, inventory, and cleanliness before it was attacked by the media. The Home Depot also likely encountered the selective perception bias. This bias focuses on instances where a company was influenced by its own base of interpretation more than the environment around them. In simplistic terms, The Home Depot had tunnel vision and was not focusing on the needs of their customers. The representation bias also applies to crisis management when companies ignore the laws of random occurrences and evaluate the likelihood of an event (social disaster such as the reputation attack on The Home Depot) based on how closely they resemble some other event (natural disaster for instance). Lastly, but not least, the self-serving bias focuses on situations where a company takes recognition for successes but blame external factors for failures. The Home Depot could have easily gone down this path with its reputation crisis, but it stood up to its own mistakes and faced the issue head on (Lehrer). Analysis: Crisis Leadership Now As discussed in the introduction, The Home Depot’s Disaster Management plan was based on three concepts which included speed, preparedness, and a clear chain of command. Throughout the years, The Home Depot proved their Disaster Management plan worked for various tragedies encountered by the company. Their methods have fallen right in line with approaches mentioned in the book, Crisis Leadership Now. Within this book, it states â€Å"If businesses are ready to survive and recover, the nation our economy are more secure† (Barton). The Home Depot was prepared and wasn’t afraid to get involved. The Home Depot’s Disaster Management plan also went along with the material within the Crisis Leadership Now, by showing The Home Depot practiced the idea that a company can best shield itself not just by assuming it’s protected, but by investigating deeper into potential problems and exposures. Along with that, The Home Depot was also promoting family and individual preparedness for disasters. Home Depot’s latest crisis involving the company’s reputation dealt with managing a crisis and handling key stakeholders. With such a public outcry for improvement, a quick response was needed to keep control of the situation. Crisis Leadership Now explains an â€Å"8 hour window† concept where â€Å"If you can capture what has happened, who is impacted, and how you intend to communicate your response with a clear plan of action within 8 hours, you have the foundation for an excellent recovery plan† (Barton). I believe The Home Depot followed this concept in formalizing a response on the MSN. com message board. The question which arises however is whether or not they should have carried the company’s response over to a verbal reply that would have appealed to more dissatisfied customers. Analysis: Managing the Unexpected The Home Depot’s Disaster Management Plan also follows several principles for HRO’s (high reliability organizations) that were laid out in the book â€Å"Managing the Unexpected†. There are a total of 5 principles which include: 1. Preoccupation with Failure – Do not focus primarily on business successes. 2. Reluctance to Simplify Interpretations – See as much as possible and welcome diversity. 3. Sensitivity to Operations – Be more attentive to the front line and be less focused on strategy. 4. Commitment to Resilience –Have the ability to bounce back after mistakes and learn from them. 5. Deference to Expertise – Do not focus expertise decisions on a hierarchical system where the top level makes all decisions. Place authority with person(s) with most expertise wherever they are located in the hierarchy. Weick) It is in my opinion that The Home Depot closely followed all five of the principles above. The two that stand out the most to me are the company’s â€Å"Commitment to Resilience† and â€Å"Deference to Expertise†. The Home Depot’s commitment to resilience can easily be seen over the years where the company produced a quick turn around after major natural disasters, as well as their response after the company’s latest reputational crisis Also, the company’s deference to expertise can be seen as top executives gave more power to the individual store managers. The executives realized that the specific store managers had more expertise for the individual store location than executives did. The fact that The Home Depot closely follows all five of the principles stated above shows that the company is a highly reliable organization (Weick). Conclusion The Home Depot has become an industry leader in Crisis Management. They continue to learn from their mistakes as well as from experience. The Home Depot should keep in mind there is always room for improvement. The key is not only to have plans set in place for natural disasters, but also for disasters such as reputational attacks. The Home Depot should continue to prepare for all sorts of tragedies. This will only insure their longevity in the field, as well as reassure customers of their core values. The Home Depot should rejoice in their successes and embrace their faults when trying to improve. Negative publicity will always be a concern for such a large company, but with a secure plan of attack, The Home Depot will continue to lead the way for home improvement.

The Nursing Career :: Co-op Placement Nursing Career Work

The Nursing Career   Ã‚  Ã‚  Ã‚  Ã‚  I was in a hospital for my co-op placement, I chose this because I was considering nursing as my chosen career path. For this reason, I have researched the nursing career. I have spent many hours in this setting and feel that I have a pretty good understanding as to what goes on day to day.   Ã‚  Ã‚  Ã‚  Ã‚  Before choosing to become a nurse, one must first examine themselves and look to see if they have the right qualities for this demanding job. Some qualities are such; caring, compassion, a strong desire and willingness to help those in need, patience, honesty and above all, good health. You need strength for such duties as lifting patients to and from bathroom facilities.   Ã‚  Ã‚  Ã‚  Ã‚  In order to become a licensed nurse, one could take a three year course at a college, or a four year program at a university. Even though the starting salary and job requirements are the same whether a graduate from college or a university, with a degree one is able to further their placement and a possible pay increase is more likely. There has, and continues to be, a very high demand for nurses all over the world.   Ã‚  Ã‚  Ã‚  Ã‚  After talking with an actual nurse I was able to see more closely the actual duties of this job. The work hours are 40 hour weeks. There are many shift hours there as well. Working in a hospital requires 24 hour responsibilities, so many of the nurses may have to rotate to afternoon, midnight or weekend shifts. Duties of the job are varied, depending on the area of the hospital you work in. In outpatient area, the nurse assists with obtaining pre-operative information, takes vital signs (blood pressure, pulse, temperature) and obtains patient?s medical history. The nurse then has to prepare the equipment for procedures to be done, and may have to assist the doctor with the procedure. Afterwards,the nurse assesses the patient taking blood pressure, pulse, etc. until the patient is stable enough to be discharged home.   Ã‚  Ã‚  Ã‚  Ã‚  On the floor the nurse has various duties. She takes reports from the previous shifts, assesses patients, gives medication, performs procedures give treatments and sees the patients with the doctors.   Ã‚  Ã‚  Ã‚  Ã‚  All hospitals in Windsor are unionized. The nurses hired are given a 90 day trial period and after that time the nurse is approaching to join the union. Salaries are paid hourly, starting at around 20 dollars an hour and ranging to 26 per hour.

Behavioral therapy

Behavioral therapy is also known as behavioral modification. It is a psychological method based on the principle that one can change the badly adjusted, maladaptive, observable, specific and self destructive behavior, through learning new and more suitable behaviors (Skinner, p 194). The origin of this theory can be traced back to the school of behaviorism which indicates that one can scientifically study psychological matters through observation of overt behavior without necessarily involving interior psychological states.Skinners theory of behaviorism accepted and supported that internal state could be part of a certain kind of behavior without necessarily being the main cause; however, he declared that through environmental manipulation, one could improve on them. The behavioral theorists include Hans Eysenck, Joseph Wolpe, Harry Solomon, Ogden Lindsley and B. F Skinner and they all had different ways of looking at behavioral problems. Eysenck’s perspective saw behavioral p roblem as connection between one’s behavior, the environment and personality characteristics. For the sake of this study, I will focus on B.F skinner’s behavioral theory (Skinner, p 198). Origin of behavioral therapy Edward Thorndike did experiments to discover the ability of dogs and cats to solve problems. He constructed wooden crates and he would cage the animals each in their own crate. The animals would escape from the crates. Though initially he just wanted to show that dogs and cats’ achievement could be controlled, he realized that he could measure the intelligence of these animals using his tools (Lindsley, p 34). He would set the animals for the same kind of task and observe how long it took to complete the given task.He learnt that there was no difference in performance between the animals that started an assignment and the ones that first observed the others performing (Skinner, p 89). He also learnt that when an animal did something that made it to successfully get out of the box; the animal was likely to repeat that action when faced by the same kind of problem. He concluded that reward reinforces the relationship between stimulus and action. He later formalized it to be called the law of effect (Skinner, p 199). Classical conditioning theory then came to explain that there is an association between reflex and the neutral stimulus.Watson used rats in his experiments to improve on the law of effect and apply it in behaviorism. He made a maze which the rats were supposed to follow. Once they had mastered the routes, he started putting blocks at different points of the maze (Skinner, p 94). If a route was blocked, the rats would then follow another route indicating that they had memory. Once the second route was blocked they would follow the other available route. He observed that when the reward for an action done was less, then the rats performed the task more slowly (Lindsley, p76). B.F Skinner came to improve on Thorndike an d Watson’s work by studying objectively behavior sequences over a prolonged period of time. He came up with the concept of operant conditioning which related the operant response and the reinforcement. This theory is based on the proposal that learning could help in change of overt behavior. People change their behavior as a result response to the occurrences in their surroundings. A given response leads to a certain outcome. When one reinforces a certain pattern of Stimulus-Response, a person’s response becomes conditioned (Skinner, p 97).The key element in this theory is reinforcement; this is anything that supports the response that is desired. Reinforcement could be positive or negative. Positive reinforcement makes one be encouraged to do more of the action that led to positive results. It includes attaining satisfaction after doing something, being recognized, being praised for work well done among others. Negative reinforcement on the other hand involves the act ions that make one increase the frequency of responses once a certain stimulus is withdrawn. Aversive stimulus results to the reduction of responses (Skinner, p 200). Behavioral Therapy This is a report about Paula a client who was referred to therapy by the general practitioner of the hospital. Following a thorough physical checkup performed on Paula the GP feels that Paula’s heart is sound enough and her condition is psychological. (Getzfeld, 2004). Paula’s case is not an isolated case of psychological dysfunction and in fact a sizeable number of people suffer these attacks in silence. (Beck, Rush, Shaw, & Emery, 1979). This is perhaps due to the feelings of embarrassment and stupidity that they feel they might be accused of.Additionally, panic attacks are not well known to many and hence the stigma. Nonetheless, panic attacks are not insignificant and can have a crippling effect in someone’s life. They are a symptom of underlying stressing and traumatic events in the patient’s life. (Feather & Ronan, 2006). This report gives a diagnosis of Paula’s case. It gives a comprehensive analysis of what is the onset of Paula’s con dition, the triggers and the effects of her attack. At the end of the report it will give the findings and recommendations on the way forward for Paula in getting treatment for her condition.Diagnosis Paula has been experiencing an array of symptoms that occur frequently at the workplace and outside home. These symptoms include dizzy spells, shortness of breath, dizziness and lightheadedness as well as chest pains and fast heartbeats. Paula feels that there is cause for alarm because these symptoms may be an indication of a heart attack. For this reason she has sought medical help from her general practitioners, and she has even visited a cardiologist for a sonogram and echocardiogram. Both these tests showed no defects or indication of heart attack.Nothing is wrong with Paula’s heart and apparently the symptoms may be a psychological related. The doctors at the company clinic where Paula works suggested that she try to relax more and steer away from caffeine, nonetheless the attacks still persevere despite Paula’s attempts to relax. She sought a second opinion from another physician who also gave similar diagnosis i. e. her attacks are a psychological problem hence she needs to sign up for therapy. With that Paula came to the clinic. Brief history of PaulaIn order to clearly diagnose Paula’s condition information from her life experiences both in the present and from the past had to be sought. Paula is 27 years old, single and lives at home with her parents. She has a good job at a securities and bond trading company which she has worked for loyally since she graduated from university with a BA in economics seemingly her life was be smooth and no developmental milestones have been experienced on her part. Prior to her recently persistent attacks she was ready to enroll for MBA.Her father died soon after she graduated from University after a brave fight with cancer, emphysema and the killer heart attack. Her mother has some health problems although nothing too serious. Her grandparents died of cancer; her grandma of breast cancer and her grandpa of colon cancer, she feels that cancer runs in the family and is afraid of it too. This is the reason why she stopped smoking and does not drink alcohol. She says matter of factly â€Å"I have enough bad seeds in me†. Paula is the only child not by plan but out of natural misfortune.She had a little brother who died at the age of three out of heart defects that developed with age. He also had other birth defects that Paula was unwilling to disclose. This memory made her teary. Obviously, the death of the little boy had deep-seated effects in all the family members. (Feather & Ronan, 2006). According to Paula, her parents did not try to get pregnant again and the option of adoption was too devastating to consider. Paula’s mother and friend at work feel greatly concerned over her condition and Paula feels that as well. Paula feels that it is time she had greater c ontrol over her problem.The medication she has been taking i. e. Xanax and Contac zonk her out and she refers to herself as a ‘walking dead’ when she is on this medications. The persistent attacks seem to be triggered by anything major to Paula and given the nature of her job she reports frequent dizzy spells, faints and attacks at work. She remembers a case whereby a client fell through and all the blame was pinned on her. At the same time a coworker at the workplace had shown particular interest on Paula as a woman. All these major events occurring concurrently in her somewhat laid back lifestyle triggered an attack.In the moment of it all, the other workers got wind of her weak point and she is afraid that they might think of her as ‘chicken’ or incompetent of handling such a demanding job. Frequency of attacks Paula’s attacks have been with her for a long while. She points out that ever since she entered university she started experiencing them. The stress levels were high what with the huge load of work, pressure from men in campus and the need to fit in since the university was small and everyone knew everyone else. In her high school it was easy to be an invisible wall paper and stay unnoticed when necessary.Unfortunately in university this was not the case and she lacked the necessary support systems or good outlets to channel the stress she was feeling. She also recalls her father’s death which affected her greatly. It was overwhelming for her although she had suspected it would happen soon. This reminded her of her brother’s death. For this reason Paula feels ‘life is very unfair’. The death of loved ones caused her to withdraw from life completely. At school she would get sweaty and the dizzy spells prior to presentation and even before she lost her virginity she had a panic attack.Paula’s case now involves her mothers, her co-workers the doctors and now psychiatrist. Before, it was her personal problem and she felt she could deal with it. Now her life is significantly affected and people around her are worried. Doctors feel that it is time she saw a therapist to uncover the real cause of the problem. Her mother feels strongly about the same as also the people at work. Assessment and investigation plan It seems that Paula is suffering from severe depression which manifests itself in panic attacks.(Alpert & Fava, 2004) She has not developed the expression skills and seems to bottle up feelings of anxiety, frustration, hurt and stress. She has managed to deactivate her social life and is highly dependant on her mother for comfort although she does not disclose her inner feelings to her mother as well. Notably, at 27 and with a good job she is still unattached to anyone and does not go out with friends. Throughout the sessions she makes no mention of significant persons other than her mother. Even at university she frequently went home to be babied.Her family back ground is a troubled one with a history of heart diseases and cancers. Her loved ones seem to be consumed by these diseases and she feels afraid of being the next. Panic attacks manifest either as ‘a way of getting through tough situations’ as she puts it or as a reaction to overpowering feelings of loss, excitement or expectations. After reviewing Paula’s case in detail it is recommended she have behavioral therapy as a start treatment program since it is the best therapy linked to activating the client from depression, a condition that is the underlying cause of Paula’s panic attacks.BATD (Behavioral Activation treatment for Depression) overview, foundation and Assumptions. This treatment option bases its foundations from cognitive therapy. It basically involves activating the client from depression by encouraging them to make connection between powerful experiences both in the present and in the past with the symptoms that they may be having. In Paulaâ €™s case it is panic attacks. The basic assumption of this therapy is that depression and subsequent symptoms of depression arise from life expenses of the patient and not the genetic predisposition. (Cooper, Smith & Upton, 1994).Vulnerability is severed by traumatic life events. This therapy encompasses assessment and treatment of cognitive, emotional and behavioral aspects of the clients. This means that its efforts are channeled toward sharpening social skills of the client through training and reinforcements, imparting relaxation techniques as well as therapy to help relax the client, increasing pleasurable activities in the clients life say situations with more laughter and easiness, training clients on assertness and emotional expressions and restructurings the clients patterns of thoughts and cognitive perceptions.(Gortner & Jacobson, 2000, Martell, Addis & Jacobson, 2001) These areas are greatly emphasized because they alter the client’s beliefs of the world aroun d them and eventually how they choose to resolve their inner problems or conflicts which are evident in behaviour. According to Beck, Rush, Shaw and Emery (1979 p. 118) mentioned in Jacobson, Mortell and Dimidjian 2007, p. 257 ‘the aim of this therapy to bring about change in the clients negative outlook in life’. The beliefs and expectations of a person indecent in his cognitive make up ultimately affect behaviour.The behavioral activation therapy recognizes that some depressions and subsequently panic attack may be or a result of genetic predisposition, it greatly emphases environmental factors as a great a preventative measure for depression maintenance. Course of treatment Paula’s treatment will commence with the establishment of therapeutic rapport with the therapist while they discuss the objectives and goals for the therapy and the sessions. This will be achieved by encouraging Paula to ask questions and be as comfortable as possible during the sessions.Pa ula and the therapist will explore the implications that her depression has had on Paula’s life for instance she lacks a social life, she cannot do her daily tasks any more, she will lose her job and so on. Under this treatment the therapist will be performing some functional analysis on Paula to gauge how well Paula is responding to treatment. For example, she should be able to start driving her car to work and performing her duties at work. The use of home works will be helpful to both Paula and the therapist in finding areas that the therapy should concentrate on.The therapy sessions will also explore the strategies that Paula should use to avoid a relapse. Paula intervention plan The first step in her treatment plan is to get her to talk more about her unpleasant life experiences. So far she has registered commendable progress into talking about her father and her young brother. When she first came in she was fidgety and kept checking her pulse over her neck. She had a pa nic stricken look but now she has relaxed a little.It is impossible to accurately state the duration that Paula might take to show full recovery since depression can be hard to overcome with the lack of proper support systems and the troubling environment at her workplace. Nonetheless, Paula sounds really determined to get over this problem and regain full control of her life. A two hour session with the psychiatrist thrice a week for a month and once a week for the following two months is recommended. This will be flexible enough for Paula to manage work and treatment. The significant people in Paula life i. e.family and coworkers need to give Paula all the support she needs to overcome this milestone. This is because her depression is not just an inner problem but the environment also triggers her attacks. The boss could encourage Paula to take some early days off and maybe some days be allowed to work from home until she is ready to work full time. The mother needs to continue be ing there for her daughter but on the other hand encourage her to be more independent. This will ensure that she is strong enough to handle life situations on her own and avoid a relapse in case she dies.The coworkers may be a bit more supportive when she experiences panic attacks and let her know it is nothing to be ashamed of. Again, Paula should expand her social networks and support system and this will a particular area where she will be trained during therapy sessions. Paula seems to over think her situations and the events in her life. A case in point is where she is quick to say that her coworkers will recommend she be transferred to the mail room because of the panic attacks. She feels that she should ‘never’ have an attack at the office again.She says ‘everyone will laugh and say look at the retard at it again. ’ She also seems to have planned out her suicide and thought of the consequences i. e. she would go to hell, it would be painless if she o verdosed on Aspirin, she would play some sad music, the suicide letter and other details fully planned. This seems to be Paula’s pattern of thinking and it is detrimental. In therapy, I will be interested in activating Paula’s spontaneity and her ability to accept her vulnerabilities and limitations towards having a fuller life. Measuring progressIn order to gauge progress on Paula’s treatment the therapist should be able to find improvements in Paula’s frequency of panic attacks. Ideally, they should reduce in the first month of treatment significantly. Additionally, her patterns of avoidance will be evaluated to see how well she is able to confront her fears. (Carr, 2001). For example, she avoids getting close to any man who might show interest in her hence stays away from social scenes like movies theatres and social gatherings. She also marks all the exit points to a place just incase she suffers another panic attack.Driving is also a problem to her a nd she has to be driven by her mother. She also avoids going out doors and stays in mostly where treatment will be effective, Paula should be able to take on her daily activities and develop healthy relationships with new people. The therapist will also make use of homework whereby Paula can try to engage in a task she feels prohibitive or unable to handle and see how well or not she manages the situation. This homework will allow her to self monitor her own progress and in therapy session discuss the feelings of accomplishment and pleasure derived from engaging in that activity.Results of the actions So far Paula has impressively shed light on her life. She has made the first big step towards treatment and that is the resolution to seek professional help. The diagnosis is that Paula is suffering from panic disorder which overlaps severe depression. She has had traumatic life experiences and suppressed them sufficiently. However she has reached a point where the emotions and negativ e psychological beliefs can no longer be bottled up hence the frequent panic attacks.The panic attacks have greatly eroded her self-esteem to a point that she planned a suicide although did not execute it. After evaluating her case I recommend psychiatric assessment just to ascertain this diagnosis so that the next level of therapy i. e. relaxation therapy and psychoanalysis can commerce. Although Paula is not actively keen on attempting another suicide, the risk is inherent and she needs close monitoring by her family and friends before and during therapy until she is strong enough to stand on her own.Paula should enroll in an activity that will enable her to think outside herself and her problems as well as boost her self-esteem. Yoga and social gatherings will particularly do her a lot of good. (Gortner & Jacobson, 2000). Lastly but importantly, Paula’s GP and cardiologist input would also be necessary in affirming this diagnosis so that Paula is well convinced that her pa nic attacks are purely psychological and not heart attack related. This will encourage her to continue the treatment. ConclusionPanic attacks are surmountable behavior activation therapy is a good way of assisting clients who suffer these attacks. The collaborative relationship between the client and the therapist should be useful in uncovering the depression in clients who suffer depression. The patterns of avoidance that Paula has developed such as avoiding relationships and friendships with others, avoiding social places staying away from work among others are crippling to Paula’s life and need to be confronted. Paula has to find a way of dealing with her problems in healthy ways. Behavioral therapy Behavioral therapy is also known as behavioral modification. It is a psychological method based on the principle that one can change the badly adjusted, maladaptive, observable, specific and self destructive behavior, through learning new and more suitable behaviors (Skinner, p 194). The origin of this theory can be traced back to the school of behaviorism which indicates that one can scientifically study psychological matters through observation of overt behavior without necessarily involving interior psychological states.Skinners theory of behaviorism accepted and supported that internal state could be part of a certain kind of behavior without necessarily being the main cause; however, he declared that through environmental manipulation, one could improve on them. The behavioral theorists include Hans Eysenck, Joseph Wolpe, Harry Solomon, Ogden Lindsley and B. F Skinner and they all had different ways of looking at behavioral problems. Eysenck’s perspective saw behavioral p roblem as connection between one’s behavior, the environment and personality characteristics. For the sake of this study, I will focus on B.F skinner’s behavioral theory (Skinner, p 198). Origin of behavioral therapy Edward Thorndike did experiments to discover the ability of dogs and cats to solve problems. He constructed wooden crates and he would cage the animals each in their own crate. The animals would escape from the crates. Though initially he just wanted to show that dogs and cats’ achievement could be controlled, he realized that he could measure the intelligence of these animals using his tools (Lindsley, p 34). He would set the animals for the same kind of task and observe how long it took to complete the given task.He learnt that there was no difference in performance between the animals that started an assignment and the ones that first observed the others performing (Skinner, p 89). He also learnt that when an animal did something that made it to successfully get out of the box; the animal was likely to repeat that action when faced by the same kind of problem. He concluded that reward reinforces the relationship between stimulus and action. He later formalized it to be called the law of effect (Skinner, p 199). Classical conditioning theory then came to explain that there is an association between reflex and the neutral stimulus.Watson used rats in his experiments to improve on the law of effect and apply it in behaviorism. He made a maze which the rats were supposed to follow. Once they had mastered the routes, he started putting blocks at different points of the maze (Skinner, p 94). If a route was blocked, the rats would then follow another route indicating that they had memory. Once the second route was blocked they would follow the other available route. He observed that when the reward for an action done was less, then the rats performed the task more slowly (Lindsley, p76). B.F Skinner came to improve on Thorndike an d Watson’s work by studying objectively behavior sequences over a prolonged period of time. He came up with the concept of operant conditioning which related the operant response and the reinforcement. This theory is based on the proposal that learning could help in change of overt behavior. People change their behavior as a result response to the occurrences in their surroundings. A given response leads to a certain outcome. When one reinforces a certain pattern of Stimulus-Response, a person’s response becomes conditioned (Skinner, p 97).The key element in this theory is reinforcement; this is anything that supports the response that is desired. Reinforcement could be positive or negative. Positive reinforcement makes one be encouraged to do more of the action that led to positive results. It includes attaining satisfaction after doing something, being recognized, being praised for work well done among others. Negative reinforcement on the other hand involves the act ions that make one increase the frequency of responses once a certain stimulus is withdrawn. Aversive stimulus results to the reduction of responses (Skinner, p 200).When considering this theory, schedules of reinforcement are considered to be very important. Principles under this theory are that positively reinforced behavior is very likely to reoccur. Shaping is also a principle that states that in order to reinforce behavior, information should be provided in small amounts. Stimulus generalization principles talks of reinforcement being generalized across stimuli that are similar to the original one (Lindsley, p 56). Behavior modification using B. F Skinner’s theory Behavior modification refers to a straight forward therapy technique that bases its arguments on skinner’s theory.It indicates that one can extinguish the unwanted behavior through the removal of the reiforcer and at the same time, behavior that is desired can be obtained and maintained via reinforcement . This argument has been used in solving many psychological problems. It is the preferred method when dealing with children. Other disorders which can be corrected using this therapy are anxiety disorders, phobias, eating disorders, anger management, aggressive behavior and substance use. All these are eliminated through changing the activities and behavior that may have contributed to such disorders (Skinner, p 96).Token economy is a derivative of behavior modification and it is used in institutions like prisons, juveniles, and psychiatric hospitals. This involves giving tokens to these people whenever they behave in a certain required way. When they revert to poor habits, the tokens are withdrawn. This is one way of behavior modifications that these institutions have used in order to keep order within the institutions. At times, Behavioral therapy methods are brought together with additional psychological involvements like medication (Skinner, p 197).This technique uses the follow ing approaches when using behavioral therapy to change a negative behavior to a positive one; systematic desensitization, flooding, behavior modification, prevention of exposure and response, operant conditioning, observational learning, contingency management, matching law, habit reversal training and covert conditioning (Lindsley, p72). Best fit patients for behavior therapy Behavioral therapy can be used as a tool to treat various problems like mental illnesses and their symptoms especially those that have maladaptive behavior.These conditions include phobias, eating disorders, anger management, aggressive behavior and substance use. Organic disorders like insomnia and incontinence could also be handled using the behavioral techniques (Skinner, p 205). This technique works very well in the treatment process of obesity. This process starts with the analysis of the activity and eating patterns in addition to other habits like dieting methods. After all this information is collected , the therapist uses it to come up with positive methods that can be used to promote weight loss, a positive self image and get healthier eating practices.The therapist does an analysis to the behavioral cause of stress in a patient. An appropriate method of treatment is then established. Cognitive therapy This therapy focuses in altering the bad behavior through changing the patterns of thinking behind them. It involves the emotions and the thoughts of the individual and the way they can be changed so that this person starts behaving more appropriately. This therapy can be used to correct many disorders like schizophrenia, autism, shyness, neurosis, stress disorders, attention deficit disorders, social phobias, mental disorders and addictions (McCullough, Para 24).It involves helping patients to triumph over difficult situations and modifying dysfunctional emotional, behavior and thinking responses. Treatment is all about bringing together the beliefs of the client and those of the therapist and testing them. It may also include testing the kind of assumptions an individual makes in life and also identifying the extent of distortion of thoughts that renders them unhelpful and unrealistic (Kohlenberg, p 234). Once the therapist challenges the way an individual thinks about something, that person is likely to change the way of thinking.Initially, this therapy was used to treat people suffering from depression. Beck came up with a list which contained ‘errors’ in thinking. He suggested that the errors maintained depression. They included selective abstraction, minimizing positives and magnifying negatives, over generalization and arbitrary inference (Kohlenberg, p 234). Historical development of cognitive therapy The theory of cognitive therapy came to be more than 50 years ago and it suggested that thoughts act as a go-between to stimuli like emotions and external events.A stimulus brings out a thought which can be a weighed up judgement of a kind and this further leads to a certain emotion. People’s evaluation of thought about a certain stimulus is what results to an emotional response and not necessarily the stimulus itself. Beck also came up with the etiological theory of depression under cognitive therapy. The theory indicated that people think negatively because their thinking is inclined to negative interpretations. People suffering from depression acquire negative schemas which are important ways through which information about the future; the world and the self are processed.These schemas are adopted early in life maybe during childhood or puberty as a result of going through stressful events in life. When such people come across situations that are similar to the ones in which the negative schemata was established, it becomes activated in the current situation (Kohlenberg, p 235). Beck also explained about the negative cognitive triad which constitutes negative biases and negative schemata. He proposed that pe ople who are depressed are very likely to make unconstructive evaluations of their future, world and selves.Depressed people are impossibility thinkers according to Beck. The cognitive triad indicates that a negative schema results to cognitive bias which fuels negative schema (Kohlenberg, p 237). Researchers suggested that depression could occur as a result of responding to perceived or imaginary loss. It could also be caused by self critical characteristics of the ego. Many psychologists wrote about cognitive features of depression trying to identify the cognitive components that caused depression. They also tried to develop many cognitive intercessions that could be used to treat depression.Since then, there have been many successful cases of patients suffering from depression getting well through cognitive therapy. His theory was opposed by behaviorists who claimed that mental causes of problem was unmeaningful and non scientific. With time, it was merged with the behavioral the rapy so as to deal with the problems that it could not have dealt with on its own (Kohlenberg, p 240). Strategies under cognitive therapy Cognitive therapy uses two strategies i. e. emotional focused and problem focused strategies.The problem focused strategy aim at directing the client in the process of identifying the problem. The therapist then helps the client to identify the responses that are utilized in the process of reducing distress in a situation. They are also evaluated to check how effective they are. The therapist and the client then develop and examine alternative responses to see how beneficial they can be to a client. When faced with a stressful situation, the client feels empowered to make mindful alternatives and chose among them the best way in which to respond.This gives the patient a kind of control over situations as they try different methods of getting out of distressful situations (McCullough, Para 32). Emotional focused strategies also aim to get the same outcomes as the other strategy. This perspective aims to alter the perception of the client on the distressing event. It therefore helps in changing the level of perceived suffering. The client is helped to redefine the problem which aids in the transformation of a disaster into a challenge or even an opportunity.The process of restructuring the event can be achieved through various ways like selective attention, distancing, minimization, and looking for constructive value from any given bad situation. When all these happen, the patients get the feeling that he is in control of the situation and this contributes to reduce the levels of stress (Kohlenberg, p 245). Best fit patients for cognitive therapy Since this technique was discovered, the most common condition that it has treated is depression.Patients who have depression are allowed to undergo self evaluation to check whether they act, say and do things the way they are supposed to do and how the patient views all these. Skills deficits are also established so that the therapist can know the source of the problem. Life experiences in terms of how satisfied the patient has been by the kind of life that he has lived (McCullough, p 24). The expectations of the patient are also evaluated in order to know how realistic they are. The therapist checks on the kind of self talk that the patient usually has.If it is negative, then it could be a source of depression since the patient seems not to believe in his capabilities and this could lead to negative repercussions like being fired (Kohlenberg, p 254). The process goes on to evaluate the kind of automatic thought that the patient has. In most cases, there is consistency in that a person who usually has positive automatic thought is likely to have them, in most situations and the same case applies to negative automatic thoughts. Irrationality or rationality of ideas is evaluated because irrational ideas could cause depression.Depressed patients tend to generalize in most cases. The therapist works to find out the extent of generalization in his depressed patients. Cognitive distortion is also checked so that the therapist can be in a position to tell the extent of depression. Optimism versus pessimism is evaluated given different situations. All these are ways through which therapists can know the causes of depression and get ways of tackling it (McCullough, p 25). Comparison and contrast between behavioral and cognitive therapyBehavioral therapy focuses on how one can change from bad behavior through strategies like reinforcement. On the other hand, cognitive therapy focuses on how there can be a change of behavior due to a change in how a person thinks about a certain situation. While cognitive therapies deal with emotions and thoughts that direct a person towards behaving in a particular way, behavioral therapy on the pother hand focuses on how to change and eliminate the bad behavior (Kohlenberg, p 263). While behavioral therapy deals w ith observation of behavior, cognitive therapy deals with the cognitive elements.

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Aristotle, Plato, And Rousseau What Is Natural And The...

Professor Graham MPP 601.01 March 19, 2016 Aristotle, Plato, and Rousseau: What is Natural and The Nature of Man As mentioned in the essay prompt, authors in this course have used the term(s) nature/natural in various ways to frame and support their arguments. As I identified in my previous paper, â€Å"In Book 1 of Aristotle s Politics, Aristotle begins by defining the city and or political community while also making the case that nearly everything exist for the sake of achieving some sort of good.† It is here that Aristotle introduces the concept of what is natural. He does this by laying the foundation of his political theory and arguing that 1) the city exist by nature and 2) politics is â€Å"natural† because man is by nature a â€Å"political animal†. In the Republic of Plato, Plato first uses the term â€Å"nature† in describing a state of being. He later uses the term in the context of the identifying the â€Å"nature of justice†; the central theme and purpose of The Republic, the notion that it is better to be just than unjust. In A Discourse on Inequality, Rousseau s first use of the term â€Å"nature† is in the context of describing the way things just are. Over time his use of the term shifts as his philosophy on human nature/the nature of man is expressed. While each of these authors use the term nature/natural in very different ways to support their arguments, they also use them similarly. Throughout their works, their use of the term(s) are both singular and multiple/plural.Show MoreRelatedHuman Nature : Good Or Evil1053 Words   |  5 PagesHuman Nature: Good or Evil All ideologies, including some economic ideologies, produce theories of human nature in order to establish fundamental human rights and to establish a more productive form of government. 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Political philosophy will help the citizens to understand why things need to be changed.†Political philosophy explores the nature, principles, and rationale that underlie the exercise of government†.[Hudelson,1999] Plato, Aristotle, Machiavelli, Karl Marx, Thomas Hobbes, john Locke, Jean-Jacques Rousseau were well known major political thinkers. Plato gives the concept of ideal state where the state is like a human including three elements-philosophers, soldiers and workers .The philosopherRead MoreThe Political Of Political Science Essay2347 Words   |  10 PagesIntroduction: According to Aristotleâ€Å"Man is by nature a political animal and he only by nature and by mere accident is without state is either above humanity or below it† Political science is ultimately related with the word politics which is derived from the Greek word â€Å"Polis†.The origin of political thought in the west and therefore goes back to the Greece.Political science is the study of the state and the government.And political philosophy is considersd to be a sub discipline of political scienceRead MorePolitical Philosophy and Plato Essay9254 Words   |  38 PagesSocrates 469 BC–399 BC, was a classical Greek Athenian philosopher. 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The Different Types of Marriages Presented in Pride and...

Discuss the different types of marriages presented in Pride and Prejudice and what this tells you about the different attitudes to marriage in the early nineteenth century. Austen opens this book with a cynical commentary on the Eighteenth Century conception of the value of love - It is a truth universally acknowledged that a gentleman in possession of a good fortune must be in want of a wife! Throughout the book, there are many insights into different beliefs on why to marry. Marrying for money was very popular, followed by lust, calculated marriages and arranged marriages. Something not as often thought about were love marriages. â€Å"Happiness in marriage is entirely a matter of chance†. This was mainly because parents†¦show more content†¦with friends or at school. It was deemed very serious to do this and a sign of a drastic change such as entering an illicit relationship or marrying a man who didn’t meet with the approval of the family. All of this made some women want to marry as soon as possible to get financial security and social status, or to get out of an unhappy family situation. Family might also add to the pressure to get married, not wanting their daughter to be an â€Å"old maid†. Being in this situation herself Austen portrays the hard life women had through the women in the story. Darcy and Lizzie’s relationship is the strongest, one based on opposites, where he is rich but she is poor, he is reserved with his feelings where as she is open to tell them, he is intense and serious, and Lizzie has a â€Å"lively, playful disposition†. But within this there is an understanding of themselves and each other. Her feelings for Mr Darcy are more based on physical attraction along with a mutual chemistry. This shows an alternative view to Lizzie’s sister Lydia and her good friend Charlotte Lucas, which is rather superficial. At first Lizzie does not want to fall at his feet just because he is rich. Early on Darcy knows he is attracted to Lizzie but this goes against everything he wants to feel. He does not want to like her because he feels she is beneath him, because her family has no money and â€Å"low connections†. This becameShow MoreRelated Explore Jane Austen’s attitude to marriage in Pride and Prejudice1671 Words   |  7 Pagesattitude to marriage in Pride and Prejudice Looking at the social, historical and cultural context In the 19th century when Austen wrote ‘Pride and Prejudice’, the way in which marriage was viewed was very different. It would have been expected of a young woman to find a ‘suitable’ partner for marriage before they were thirty, as after this they could be seen as an embarrassment to their family. By suitable, it does not mean in the way in which marriage is viewed today. 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These themes deal with the subjects of; marriage, good breeding and appearances, socialRead MoreCompare the Presentation of Love in Shakespeare to Pride and Prejudice1074 Words   |  5 Pages‘Romeo and Juliet’ and ‘Pride and Prejudice’ are the two of English literature’s most celebrated and loved stories.   In both cases, the theme of the story is love between a young man and women and the lovers are the main characters about which the rest of the cast or characters in the story revolve.   Although both are romances, in the literal sense of the word, there are numerous differences between them; this essay intends to examine the similarities and differences between the two works, specificallyRead MorePride And Prejudice By Elizabeth Bennet2024 Words   |  9 Pagesindustry portrays marriage as picture perfect, in which every girl has their dream wedding and true love always finds its way. Contrary to the media’s view, marriage was not always a fairy-tale because women had the responsibility to help provide for their family. During the English Regency period, young girls married for financial security and social benefits to improve their family’s status. In Pride and Prejudice, Elizabeth Bennet rebelled against this mainstream idea of marriage set by society

Basel Norms in India free essay sample

Technical Paper – Course on General Management and Communication Skills, Institute of Chartered Accountants of India Batch 129 Basel II Implications on Indian Banks Group Members Rahul Sharma (ERO0097549) Abhishek Tulsyan (CRO0137558) Sikha Kedia (ERO0105399) Gourav Modi (ERO0016925) Praveen Didwania (ERO0110131) Index of Contents Topics Page No. I. Introduction A. B. C. D. E. F. G. Background Functions of Basel Committee The Evolution to Basel II – First Basel Accord Capital Requirements and Capital Calculation under Basel I Criticisms of Basel I New Approach to Risk Based Capital Structure of Basel II First Pillar : Minimum Capital Requirement Types of Risks under Pillar I The Second Pillar : Supervisory Review Process The Third Pillar : Market Discipline 3 3 3 3 3 4 4 II. The Three Pillar Approach A. B. C. D. 5 5 6 6 7 7 7 III. Capital Arbitrage and Core Effect of Basel II A. Capital Arbitrage B. Bank Loan Rating under Basel II Capital Adequacy Framework C. Effect of Basel II on Bank Loan Rating IV. Basel II in India A. Implementation C. Impact on Indian Banks D. Impact on Various Elements of Investment Portfolio of Banks E. Impact on Bad Debts and NPA’s of Indian Banks D. Government Policy on Foreign Investment E. Threat of Foreign Takeover 8 8 9 10 10 10 V. Conclusion A. SWOT Analysis of Basel II in Indian Banking Context B. Challenges going ahead under Basel II 11 11 13 13 VI. VII. References The Technical Paper Presentation Team 2 I. Introduction: A. Background Basel II is a new capital adequacy framework applicable to Scheduled Commercial Banks in India as mandated by the Reserve Bank of India (RBI). The Basel II guidelines were issued by the Basel Committee on Banking Supervision that was initially published in June 2004. The Accord has been accepted by over 100 countries including India. In April 2007, RBI published the final guidelines for Banks operating in India. Basel II aims to create international standards that deals with Capital Measurement and Capital Standards for Banks which banking regulators can use when creating regulations about how much banks need to put aside to guard against the types of financial and operational risks banks face. The Basel Committee on Banking Supervision was constituted by the Central Bank Governors of the G-10 countries in 1974 consisting of members from Australia, Brazil, Canada, United States, United Kingdom, Spain, India, Japan, etc to name a few. The ommittee regularly meets four times a year at the Bank for International Settlements (BIS) in Basel, Switzerland where its 10 member Secretariat is located. B. Functions of the Basel Committee The purpose of the committee is to encourage the convergence toward common approaches and standards. However, the Basel Committee is not a classical multilateral organisation like World Trade Organisation. It has no founding treaty and it does not issue binding regulat ions. It is rather an informal forum to find policy solutions and promulgate standards. C. The Evolution to Basel II – First Basel Accord The First Basel Accord (Basel I) was completed in 1988. The main features of Basel I were: †¢ †¢ †¢ Set minimum capital standards for banks Standards focused on credit risk, the main risk incurred by banks Became effective end-year 1992 The First Basel Accord aimed at creating a level playing field for internationally active banks. Hence, banks from different countries competing for the same loans would have to set aside roughly the same amount of capital on the loans. D. Capital Requirements and Capital Calculation under Basel – I Minimum Capital Adequacy ratio was set at 8% and was adjusted by a loan’s credit risk weight. Credit risk was divided into 5 categories viz. 0%, 10%, 20%, 50% and 100%. Commercial loans, for example, were assigned to the 100% risk weight category. To calculate required capital, a bank would multiply the assets in each risk category by the category’s risk weight and then multiply the result by 8%. Thus, a Rs 100 commercial loan would be multiplied by 100% and then by 8%, resulting in a capital requirement of Rs8. E. Criticisms of Basel – I Following are the criticisms of the First Basel Accord (Basel I):†¢ †¢ It took too simplistic an approach to setting credit risk weights and for ignoring other types of risk. Risks weights were based on what the parties to the Accord negotiated rather than on the actual risk of each asset. Risk weights did not flow from any particular insolvency probability standard, and were for the most part, arbitrary. 3 †¢ †¢ †¢ The requirements did not account for the operational and other forms of risk that may also be important. Except for trading account activities, the capital standards did not account for hedging, diversification, and differences in risk management techniques. Advances in technology and finance allowed banks to develop their own capital allocation models in the 1990’s. This resulted in more accurate calculation of bank capital than possible under Basel I. These models allowed banks to align the amount of risk they undertook on a loan with the overall goals of the bank. Internal models allow banks to more finely differentiate risks of individual loans than is possible under Basel – I. It facilitates risks to be differentiated within loan categories and between loan categories and also allows the application of a capital charge to each loan, rather than each category of loan. F. New Approach to Risk-Based Capital †¢ †¢ †¢ By the late 1990’s, growth in the use of regulatory capital arbitrage led the Basel Committee to begin work on a new capital regime (Basel II) Effort focused on using banks’ internal rating models and internal risk models June 1999: The Basel Committee issued a proposal for a new capital adequacy framework to replace Basel I. In order to overcome the criticisms of Basel – I and for adoption of the new approach to riskbased capital, Basel II guidelines were introduced. G. Structure of Basel – II Basel – II adopts a three pillar approach: †¢ †¢ †¢ Pillar I Minimum Capital Requirement (Addressing Credit Risk, Operational Risk Market Risk) Pillar II Supervisory Review (Provides Framework for Systematic Risk, Liquidity Risk Legal Risk) Pillar III Market Discipline Disclosure (To promote greater stability in the financial system) II. The Three Pillar Approach The first pillar establishes a way to quantify the minimum capital requirements. The main objective of Pillar I is to align capital the adequacy ratios to the risk sensitivity of the assets affording a greater flexibility in the computation of banks individual risk. Capital Adequacy Ratio is defined as the amount of regulatory capital to be maintained by a bank to account for various risks inbuilt in the banking sy stem. The focus of Capital Adequacy Ratio under Basel I norms was on credit risk and was calculated as follows: Capital Adequacy Ratio = Tier I Capital+Tier II Capital Risk Weighted Assets Basel Committee has revised the guidelines in the year June 2001 known as Basel II Norms. Capital Adequacy Ratio in New Accord of Basel II: Capital Adequacy Ratio = Total Capital (Tier I Capital+Tier II Capital) Market Risk(RWA) + Credit Risk(RWA) + Operation Risk(RWA) *RWA = Risk Weighted Assets Calculation of Capital Adequacy Ratio: Total Capital: Total Capital constitutes of Tier I Capital and Tier II Capital less shareholding in other banks. Tier I Capital = Ordinary Capital + Retained Earnings Share Premium Intangible assets. Tier II Capital = Undisclosed Reserves + General Bad Debt Provision+ Revaluation Reserve+ Subordinate debt+ Redeemable Preference shares Tier III Capital: Tier III Capital includes subordinate debt with a maturity of at least 2 years. This is addition or substitution to the Tier II Capital to cover market risk alone. Tier III Capital should not cover more than 250% of Tier I capital allocated to market risk. A. First Pillar : Minimum Capital Requirement B. Types of Risks under Pillar I . Credit Risk Credit risk is the risk of loss due to a debtors non-payment of a loan or other line of credit (either the principal or interest (coupon) or both). Basel II envisages two different ways of measuring credit risk which are standarised approach, Internal Rating-Based Approach. The Standardised Approach The standardized approach is conceptually the same as the present Accord, but is more risk sensitive. Un der this approach the banks are required to use ratings from External Credit Rating Agencies to quantify required capital for credit risk. The Internal Ratings Based Approach (IRB) Under the IRB approach, different methods will be provided for different types of loan exposures. Basically there are two methods for risk measurement which are Foundation IRB and Advanced IRB. The framework allows for both a foundation method in which a bank estimate the probability of default associated with each borrower, and the supervisors will 5 supply the other inputs and an advanced IRB approach, in which a bank will be permitted to supply other necessary inputs as well. Under both the foundation and advanced IRB approaches, the range of risk weights will be far more diverse than those in the standardized approach, resulting in greater risk sensitivity. 2. Operational Risk An operational risk is a risk arising from execution of a companys business functions. As such, it is a very broad concept including e. g. fraud risk, legal risk, physical or environmental risks, etc. Basel II defines operational risk as the risk of loss resulting from inadequate or failed internal processes, people and systems, or from external events. Although the risks apply to any organization in business, this particular risk is of particular relevance to the banking regime where regulators are responsible for establishing safeguards to protect against systematic failure of the banking system and the economy. Banks will be able to choose between three ways of calculating the capital charge for operational risk – the Basic Indicator Approach, the Standardized Approach and the advanced measurement Approaches. 3. Market Risk Market risk is the risk that the value of a portfolio, either an nvestment portfolio or a trading portfolio, will decrease due to the change in value of the market risk factors. The four standard market risk factors are stock prices, interest rates, foreign exchange rates, and commodity prices. The preferred approach is VAR(value at risk). C. The Second Pillar : Supervisory Review Process Supervisory review process has been introduced to ensure not only that banks have adequate capital to support all th e risks, but also to encourage them to develop and use better risk management techniques in monitoring and managing their risks. The process has four key principles – a) Banks should have a process for assessing their overall capital adequacy in relation to their risk profile and a strategy for monitoring their capital levels. b) Supervisors should review and evaluate bank’s internal capital adequacy assessment and strategies, as well as their ability to monitor and ensure their compliance with regulatory capital ratios. c) Supervisors should expect banks to operate above the minimum regulatory capital ratios and should have the ability to require banks to hold capital in excess of the minimum. ) Supervisors should seek to intervene at an early stage to prevent capital from falling below minimum level and should require rapid remedial action if capital is not mentioned or restored. D. The Third Pillar : Market Discipline Market discipline imposes strong incentives to banks to conduct their business in a safe, sound and effective manner. It is proposed to be effected through a series of disclosure requirements on capital, risk exposure etc. so that market participants can assess a bank’s capital adequacy. These disclosures should be made at least semiannually and more frequently if appropriate. Qualitative disclosures such as risk management objectives and policies, definitions etc. may be published annually. 6 III. Capital Arbitrage and Core Effect of Basel II Regulatory arbitrage is where a regulated institution takes advantage of the difference between its real (or economic) risk and the regulatory position. Securitization is the main means used by Banks to engage in Regulatory Capital Arbitrage. Example of Capital Arbitrage is given below: A. Capital Arbitrage †¢ Assume a bank has a portfolio of commercial loans with the following ratings and internally generated capital requirements – AA-A: 3%-4% capital needed – B+-B: 8% capital needed – B- and below: 12%-16% capital needed Under Basel I, the bank has to hold 8% risk-based capital against all of these loans To ensure the profitability of the better quality loans, the bank engages in capital arbitrage, it securitizes the loans so that they are reclassified into a lower regulatory risk category with a lower capital charge Lower quality loans with higher internal capital charges are kept on the bank’s books because they require less risk-based capital than the bank’s internal model indicates. †¢ †¢ †¢ B. Bank Loan Rating under Basel – II Capital Adequacy Framework †¢ On April 27, 2007, the Reserve Bank of India released the final guidelines for implementation of the New Capital Adequacy Framework (Basel II) applicable to the Banking system of the country The new framework mandates that the amount of capital provided by a bank against any loan and facility will be based on the credit rating assigned to the loan issue by an external rating agency. This means that a loan and a facility with a higher credit rating will attract a lower risk weight than one with a lower credit rating. †¢ †¢ Illustration of capital-saving potential by banks on a loan of Rs 1000 million Rating Basel I Basel II Capital Saved (Rs Long Short Risk Capital Risk Capital Million) Term Term Weight Required* Weight Required Rating Rating (Rs Million) (Rs Million) AAA P1+ 100% 90 20% 18 72 AA P1 100% 90 30% 27 63 A P2 100% 90 50% 45 45 BBB P3 100% 90 100% 90 0 BB P4 P5 100% 90 150% 135 (45) below Unrated Unrated 100% 90 100% 90 0 *Capital required is computed as Loan Amount ? Risk Weight ? 9% C. Effect of Basel – II on Bank Loan Rating †¢ †¢ Banks would either prefer that the Borrower should get itself rated, or, It would prefer that the borrowing institution should pay a higher rate of interest to compensate for the loss. 7 To substantiate the above fact, following example is taken in respect of a strong company: Loan of Rating AAA is taken of Rs 100 Crores @ 12% interest rate Capital Adequacy Rating Risk % Capital Required Opportunity Ratio (Rs Crores) Interest lost by the Bank (Rs Crores) C. A. R. Unrated 100% 9. 00 1. 08 C. A. R. New 20% 1. 80 0. 22 Total Opportunity Interest lost by the Bank (Rs Crores) 0. 86 Hence, Banks would resort to the above-mentioned measures in order to reduce or curb this loss on opportunity interest. Worse affected by this action taken by Banks would be the weaker companies. They would either be charged a higher rate of interest on loans to compensate for the loss or would alternatively have to approach another bank charging a lower rate of interest. The ideal solution to this problem would be that a weaker company should get itself rated and also take steps in order to have a better credit rating. Credit Rating is an evaluation of credit worthiness of a person, company or instrument. Thus, it indicates their willingness to pay for the obligation and the net worth. IV. Basel II in India A. Implementation The deadline for implementing the base approach of Basel II norms in India, was originally set for March 31, 2007. Later the RBI extended the deadline for Foreign banks in India and Indian banks operating abroad to meet those norms by March 31, 2008, while all other scheduled commercial banks were to adhere to the guidelines by March 31, 2009. Later the RBI confirmed that all commercial banks were Basel II compliant by March 31, 2009. Keeping in view the likely lead time that may be needed by the banks for creating the requisite technological and the risk management infrastructure, including the required databases, the MIS and the skill up-gradation, etc. , RBI has proposed the implementation of the advanced approaches under Basel II in a phased manner starting from April 1, 2010 B. Impact on Indian Banks Basel II allows national regulators to specify risk weights different from the internationally recommended ones for retail exposures. The RBI had, therefore, announced an indicative set of weights for domestic corporate long-term loans and 8 bonds subject to different ratings by international rating agencies such as Moodys Investor Services which are slightly different from that specified by the Basel Committee (Table 1). C. Impact on various elements of the investment portfolio of banks The bonds and debentures portfolio of the banks consist of investments into higher rated companies, hence the corporate assets measured using the standardised approach may be exposed to slightly lower risk weights in comparison with the 100 per cent risk weights assigned under Basel I. The Indian banks have a large short-term portfolio in the form of cash credit, overdraft and working capital demand loans, which were un-rated, and carried a risk weight of 100 per cent under the Basel I regime. They also have short-term investments in commercial papers in their investment portfolio, which also carried a 100 per cent risk weight. The RBIs capital adequacy guidelines has prescribed lower risk weights for short-tem exposures, if these are rated (Table 2). This provides the banks with an opportunity to benefit from their investments in commercial paper (which are typically rated in A1+/A1 category) and give them the potential to exploit the proposed short-term credit risk weights by obtaining short-term ratings for exposures in the form of cash credit, overdraft and working capital loans. The net result is that the implementation of Basel II provided Indian banks with the opportunity to significantly reduce their credit risk weights and reduce their required regulatory capital, if they suitably adjust their portfolio by lending to rated but strong corporate and increase their retail lending. According to some reports, most of the Indian banks who have migrated to Basel II have reported a reduction in their total Capital Adequacy Ratios (CARs). However, a few banks, those with high exposures to higher rated corporate or to the regulatory retail portfolio, have reported increased CARs. However, a recent study by New Delhi-based industry lobby group Assocham has concluded that Capital Adequacy Ratio (CAR) of a group of commercial banks, which were part of the study improved to 13. 48% in 2008-09 from 12. 35% in 2007-08, due to lower risk weights, implementation of Basel II norms and slower credit growth. 9 D. Bad debts and requirement of additional capital In this context, the situation regarding bad debts and NPA’s is very pertinent. The proportion of total NPAs to total advances declined from 23. 2 per cent in March 1993 to 7. per cent in March, 2004. The improvement in terms of NPAs has been largely the result of provisioning or infusion of capital. This meant that if the banks required more capital, as they would to implement Basel II norms, they would have to find capital outside of their own or the governments re sources. ICRA has estimated that, Indian banks would need additional capital of up to Rs. 12,000 crore to meet the capital charge requirement for operational risk under Basel II. Most of this capital would be required by PSBs Rs. 9,000 crore, followed by the new generation private sector banks Rs. 1,100 crore, and the old generation private sector bank Rs. 750 crore. In practice, to deal with this, a large number of banks have been forced to turn to the capital market to meet their additional regulatory capital requirements. ICICI Bank, for example, has raised around Rs. 3,500 crore, thus improving its Tier I capital significantly. Many of the PSBs, namely, Punjab National Bank, Bank of India, Bank of Baroda and Dena Bank, besides private sector banks such as UTI Bank have either already tapped the market or have announced plans to raise equity capital in order to boost their Tier I capital. E. Government Policy on foreign investment The need to go public and raise capital challenged the government policy aimed at restricting concentration of share ownership, maintaining public dominance and limiting foreign influence in the banking sector. One immediate fallout was that PSBs being permitted to dilute the governments stake to 51 per cent, and the pressure to reduce this to 33 per cent increased. Secondly, the government allowed private banks to expand equity by accessing capital from foreign investors. This put pressure on the RBI to rethink its policy on the ownership structure of domestic banks. In the past the RBI has emphasised the risks of concentrated foreign ownership of banking assets in India. Subsequent to a notification issued by the Government, which had raised the FDI limit in private sector banks to 74 per cent under the automatic route, a comprehensive set of policy guidelines on ownership of private banks was issued by the RBI. These guidelines stated, among other things, that no single entity or group of related entities would be allowed to hold shares or exercise control, directly or indirectly, in any private sector bank in excess of 10 per cent of its paid-up capital. F. Threat of foreign takeover There has been growing pressure to consolidate domestic banks to make them capable of facing international competition. Indian banks are pigmies compared with the global majors. Indias biggest bank, the State Bank of India, which accounts for onefifth of the total banking assets in the country, is roughly one-fifth as large as the worlds biggest bank Citigroup. Given this difference, even after consolidation of 10 omestic banks, the threat of foreign takeover remains if FDI policy with respect to the banking sector is relaxed. Not surprisingly, a number of foreign banks have already evinced an interest in acquiring a stake in Indian banks. Thus, it appears that foreign bank presence and consolidation of bankin g are inevitable post Basel II. V. Conclusion A. SWOT Analysis of Basel II in Indian Banking Context Strenghts †¢ †¢ Aggression towards development of the existing standards by banks. Strong regulatory impact by central bank to all the banks for implementation. Presence of intellectual capital to face the change in implementation with good quality. †¢ †¢ †¢ Weaknesses Poor Technology Infrastructure Ineffective Risk Measures Presence of more number of Smaller banks that would likely to be impacted adversely. †¢ Opportunities †¢ †¢ Increasing Risk Management Expertise. Need significant connection among business,credit and risk management and Information Technology. Advancement of Technologies. Strong Asset Base would help in bigger growth. †¢ †¢ Threats Inability to meet the additional Capital Requirements Loss of Capital to the entire banking system, due to Mergers and acquisitions. Huge Investments in technologies †¢ †¢ †¢ B. Challenges going ahead under Basel II †¢ The new norms will almost invariably increase capital requirement in all banks across the board. Although capital requirement for credit risk may go down due to adoption of more risk sensitive models such advantage will be more than offset by additional capital charge for operational risk and increased capital requirement for market risk. This partly explains the current trend of consolidation in the banking industry. Competition among banks for highly rated corporates needing lower amount of capital may exert pressure on already thinning interest spread. Further, huge implementation cost may also impact profitability for smaller banks. The biggest challenge is the re-structuring of the assets of some of the banks as it would be a tedious process, since most of the banks have poor asset quality leading to significant proportion of NPA. This also may lead to Mergers Acquisitions, which itself would be loss of capital to entire system. The new norms seem to favor the large banks that have better risk management and measurement expertise, who also have better capital adequacy ratios and geographically diversified portfolios. The smaller banks are also likely to be hurt by the rise in weightage †¢ †¢ †¢ 11 of inter-bank loans that will effectively price them out of the market. Thus, banks will have to re-structure and adopt if they are to survive in the new environment. †¢ Since improved risk management and measurement is needed, it aims to give impetus to the use of internal rating system by the international banks. More and more banks may have to use internal model developed in house and their impact is uncertain. Most of these models require minimum historical bank data that is a tedious and high cost process, as most Indian banks do not have such a database. The technology infrastructure in terms of computerization is still in a nascent stage in most Indian banks. Computerization of branches, especially for those banks, which have their network spread out in remote areas, will be a daunting task. Penetration of information technology in banking has been successful in the urban areas, unlike in the rural areas where it is insignificant. An integrated risk management concept, which is the need of the hour to align market, credit and operational risk, will be difficult due to significant disconnect between business, risk managers and IT across the organizations in their existing set-up. Implementation of the Basel II will require huge investments in technology. According to estimates, Indian banks, especially those with a sizeable branch network, will need to spend well over $ 50-70 Million on this. Computation of probability of default, loss given default, migration mapping and supervisory validation require creation of historical database, which is a time consuming process and may require initial support from the supervisor. With the implementation of the new framework, internal auditors may become increasingly involved in various processes, including validation and of the accuracy of the data inputs, review of activities performed by credit functions and assessment of a banks capital assessment process. Pillar 3 purports to enforce market discipline through stricter disclosure requirement. While admitting that such disclosure may be useful for supervisory authorities and rating agencies, the expertise and ability of the general public to comprehend and interpret disclosed information is open to question. Moreover, too much disclosure may cause information overload and may even damage financial position of bank. Basel II proposals underscore the interaction between sound risk management practices and corporate good governance. The banks board of directors has the responsibility for setting the basic tolerance levels for various types of risk. It should also ensure that management establishes a framework for assessing the risks, develop a system to relate risk to the banks capital levels and establish a method for monitoring compliance with internal policies. The risk weighting scheme under Standardised Approach also creates some incentive for some of the bank clients to remain unrated since such entities receive a lower risk weight of 100 per cent vis-a-vis 150 per cent risk weight for a lowest rated client. This might specially be the case if the unrated client expects a poor rating. The banks will need to be watchful in this regard. †¢ †¢ †¢ †¢ †¢ †¢ †¢ †¢ We can conclude by saying that the Basel II framework provides significant incentives to banks to sharpen their risk management expertise to enable more efficient risk-return tradeoffs, it also presents a valuable opportunity to gear up their internal processes to the 12 international best standards. This would require substantial capacity building and commitment of resources through close involvement of the banks’ Top Management in guiding this arduous undertaking. Notwithstanding intense competition, the expansionary phase of the economy is expected to provide ample opportunities for the growth of the banking industry. The growth trajectory, adherence to global best practices and risk management norms are likely to catapult the Indian Banks onto the global map, making them a force to reckon with. VI. References 1. The Evolution to Basel II by Donald Inscoe, Deputy Director, Division of Insurance and Research, US Federal Deposit Insurance Corporation. 2. Basel II – Challenges Ahead of the Indian Banking Industry by Jagannath Mishra and Pankaj Kumar Kalawatia. 3. Basel II Norms and Credit Ratings by CA Sangeet Kumar Gupta. 4. The Business Line Magazine. 5. The Chartered Accountant – Journal of the Institute of Chartered Accountants of India. 6. www. bis. org 7. www. rbi. org. in 8. www. wikipedia. org 9. www. google. com VII. The Technical Paper Presentation Team Name of Member Email ID’s [emailprotected] org tulsyan. [emailprotected] co. in sikha. [emailprotected] com ca. [emailprotected] com [emailprotected] com 1. Rahul Sharma 2. Abhishek Tulsyan 3. Sikha Kedia 4. Gourav Modi 5. Praveen Didwania 13