Fundamentals of Banking Operations

3.1. Role of the Central Bank and Basel Regulations

Role of the Central Bank

The central bank ensures systemic stability by:

• Setting reserve requirements

• Conducting open market operations

• Supervising commercial banks

• Acting as lender of last resort

In Kenya, this mandate is executed by the Central Bank of Kenya.

Basel Regulations

The Basel framework was developed by the Bank for International Settlements.

Major accords:

• Basel I – Capital adequacy standards

• Basel II – Risk-sensitive capital framework

• Basel III – Strengthened liquidity and capital requirements after the 2008 financial crisis

Objectives:

• Improve bank resilience

• Reduce systemic risk

• Enhance transparency