Basel III is seeking to achieve a broader macroprudential goal of protection for the banking sector by requesting:
Longer horizon Default Probabilities (DP);
Downturn loss-given-default measures;
Improved calibration of risks (higher capital requirement and better quality capital for liquidity purposes).
Thus, the Basel III rules promote more modest global risk-taking by the banking sector (standards for bank capital and liquidity). Around the globe, different initiatives to implement the Basel III Requirements (B3R) have arisen.
In Europe, it’s been implemented through a directive, known as the Capital Requirement Directive (CRD IV) and for the first time a regulation (Capital Requirement Regulation - CRR) (transposition July 2013). In the United States, the US Basel III Requirements have been incorporated within the Dodd-Frank Wall Street Reform and Consumer Protection Act (DFA).
In lieu of strengthening and harmonizing the financial sector, it appears than the rules for banking supervision have become monstrously more complex than ever. These rules lead the industry in an environment in which the most successful institutions are the smartest, not the most aggressive any more. The Banking model has to be redefined.