This report has been commissioned to give an investigative insight into the implementation of Basel III; the implications of implementing, previous accords and also the impact this has on various systems and activities. It will explore the previous shortcomings of the accords, aswel as the new requirements. There will be a brief description on each topic as well as a sound, but critical analysis of the impact upon each of these, caused by Basel III. Topics include: Basel III, previous accords, Global Bank Lending and the Bank System.
It incorporates a variety of information sources to gain a broader understanding of viewpoints and effects, but will focus largely on Bank Behaviour in Response to Basel III: A Cross-Country Analysis by Thomas F. Cosimano and Dalia S. Hakura (2011).
Shadow Banking and the Global Financial Crisis: The Regulatory Response (Oxfo...J.P. Reimann
This paper studies the shadow banking system and its regulation since the global financial crisis of 2008. The shadow banking system is a newly coined term, that is not yet (or only very scarcely) regulated or defined. It has been remarked that the shadow banking sector played a major part in the leading up to the crisis. While regulators have been quick to introduce stricter rules for banks and insurance companies, the shadow banks have been left largely untouched by new regulations.
We measure how securitized assets, including mortgage-backed securities and other asset-backed securities, have shifted across financial institutions over this crisis and how the availability of financing has accommodated such shifts. Sectors dependent on repo financing – in particular, the hedge fund and broker-dealer sector – have reduced asset holdings, while the commercial banking sector, which has had access to more stable funding sources, has increased asset holdings. These findings are important to understand the role played by the government during the crisis as well as to understand the factors determining asset prices and liquidity during the crisis.
Zhiguo He (University of Chicago), In Gu Khang (Northwestern University) and Arvind Krishnamurthy (Northwestern University and NBER)
Discusses briefly shadow banks, their role in the subprime crisis, their activities in China, and the regulations and measures taken to control or reduce the negative effects of those financial institutions on the world economy.
Shadow Banking and the Global Financial Crisis: The Regulatory Response (Oxfo...J.P. Reimann
This paper studies the shadow banking system and its regulation since the global financial crisis of 2008. The shadow banking system is a newly coined term, that is not yet (or only very scarcely) regulated or defined. It has been remarked that the shadow banking sector played a major part in the leading up to the crisis. While regulators have been quick to introduce stricter rules for banks and insurance companies, the shadow banks have been left largely untouched by new regulations.
We measure how securitized assets, including mortgage-backed securities and other asset-backed securities, have shifted across financial institutions over this crisis and how the availability of financing has accommodated such shifts. Sectors dependent on repo financing – in particular, the hedge fund and broker-dealer sector – have reduced asset holdings, while the commercial banking sector, which has had access to more stable funding sources, has increased asset holdings. These findings are important to understand the role played by the government during the crisis as well as to understand the factors determining asset prices and liquidity during the crisis.
Zhiguo He (University of Chicago), In Gu Khang (Northwestern University) and Arvind Krishnamurthy (Northwestern University and NBER)
Discusses briefly shadow banks, their role in the subprime crisis, their activities in China, and the regulations and measures taken to control or reduce the negative effects of those financial institutions on the world economy.
Mercer Capital's Atlantic Coast Bank Watch | August 2013Mercer Capital
The August 2013 issue of Bank Watch is available now at www.mercercapital.com, and features articles by Jeff Davis, Madeleine Davis, and the announcement of an upcoming webinar on the recently finalized capital rules.
Skiera, Bernd / Bermes, Manuel / Horn, Lutz (2011), "Customer Equity Sustainability Ratio: A New Metric for Assessing a Firm’s Future Orientation", Journal of Marketing, Vol. 75 (May), 118-131
Macro Risk Premium and Intermediary Balance Sheet Quantitiescatelong
The macro risk premium measures the threshold return for real activity that
receives funding from savers. Financial intermediaries’ balance sheet conditions provide a window on the macro risk premium. The tightness of intermediaries’ balance sheet constraints determines their “risk appetite”. Risk appetite, in turn, determines the set of real projects that
receive funding, and hence determine the supply of credit. Monetary policy affects the risk appetite of intermediaries in two ways: via interest rate policy, and via quantity policies. We estimate time varying risk appetite of financial intermediaries for the U.S., Germany, the U.K., and Japan, and study the joint dynamics of risk appetite with macroeconomic aggregates and monetary policy instruments for the U.S. We argue that risk appetite is an important indicator for monetary conditions.
A Fistful of Dollars: Lobbying and the Financial Crisis†catelong
Has lobbying by financial institutions contributed to the financial crisis? This paper uses detailed information on financial institutions’ lobbying and their mortgage lending activities to answer this question. We find that, during 2000-07, lenders lobbying more intensively on specific issues related to mortgage lending (such as consumer protection laws) and securitization (i) originated mortgages with higher loan-to-income ratios, (ii) securitized a faster growing proportion of their loans, and (iii) had faster growing loan portfolios. Ex-post, delinquency rates are higher in areas where lobbying lenders’ mortgage lending grew faster. These lenders also experienced negative abnormal stock returns during key events of the crisis. The findings are robust to (i) falsification tests using information on lobbying activities on financial sector issues unrelated to mortgage lending, (ii) instrumental variables strategies, and (iii) a difference-in-difference approach based on state-level lending laws. These results suggest that lobbying may be linked to lenders expecting special treatments from policymakers, allowing them to engage in riskier lending behavior.
Deniz Igan, Prachi Mishra, and Thierry Tressel, Research Department, IMF‡
October 14, 2009
Moderninizing bank supervision and regulationcatelong
This is the testimony of Chris Whalen to the Senate Banking Committee on March 24, 2009 about bank and financial institution regulation and supervision.
This is a free e-book from the London School of Economics. It includes several stand alone chapters. Each one of them is written by a different expert or professor. The main underlying topics include how to manage and prevent future financial crisis. And, what would be the best financial regulatory framework to do just that.
IOSR Journal of Business and Management (IOSR-JBM) is an open access international journal that provides rapid publication (within a month) of articles in all areas of business and managemant and its applications. The journal welcomes publications of high quality papers on theoretical developments and practical applications inbusiness and management. Original research papers, state-of-the-art reviews, and high quality technical notes are invited for publications.
National Economic Survey - Volume I - Chapter 8 Financial Fragility In The NB...DVSResearchFoundatio
OBJECTIVE
National Economic Survey (NES) is the flagship annual document of the Ministry of Finance of the Government of India. It reviews the developments in the Indian economy over the past financial year, summarizes the performance on major development programs, and highlights initiatives of the government and the prospects of the economy in the short to medium term.
Liquidity of an asset has been defined as a degree where asset or security can be bought or sold in the securities market and this sale or purchase is done without harming the asset’s price. Liquidity has its own benefits such as investment in liquid assets than the illiquid ones. The liquid assets can be easily converted into cash which include the blue chip and money market securities. The ease and comfort with which financial instruments such as stocks and bonds are converted into ownership is the main essence of liquid assets (Burke, n.d.). Liquidity problems can arise due to the following business factors such as:
Mercer Capital's Atlantic Coast Bank Watch | August 2013Mercer Capital
The August 2013 issue of Bank Watch is available now at www.mercercapital.com, and features articles by Jeff Davis, Madeleine Davis, and the announcement of an upcoming webinar on the recently finalized capital rules.
Skiera, Bernd / Bermes, Manuel / Horn, Lutz (2011), "Customer Equity Sustainability Ratio: A New Metric for Assessing a Firm’s Future Orientation", Journal of Marketing, Vol. 75 (May), 118-131
Macro Risk Premium and Intermediary Balance Sheet Quantitiescatelong
The macro risk premium measures the threshold return for real activity that
receives funding from savers. Financial intermediaries’ balance sheet conditions provide a window on the macro risk premium. The tightness of intermediaries’ balance sheet constraints determines their “risk appetite”. Risk appetite, in turn, determines the set of real projects that
receive funding, and hence determine the supply of credit. Monetary policy affects the risk appetite of intermediaries in two ways: via interest rate policy, and via quantity policies. We estimate time varying risk appetite of financial intermediaries for the U.S., Germany, the U.K., and Japan, and study the joint dynamics of risk appetite with macroeconomic aggregates and monetary policy instruments for the U.S. We argue that risk appetite is an important indicator for monetary conditions.
A Fistful of Dollars: Lobbying and the Financial Crisis†catelong
Has lobbying by financial institutions contributed to the financial crisis? This paper uses detailed information on financial institutions’ lobbying and their mortgage lending activities to answer this question. We find that, during 2000-07, lenders lobbying more intensively on specific issues related to mortgage lending (such as consumer protection laws) and securitization (i) originated mortgages with higher loan-to-income ratios, (ii) securitized a faster growing proportion of their loans, and (iii) had faster growing loan portfolios. Ex-post, delinquency rates are higher in areas where lobbying lenders’ mortgage lending grew faster. These lenders also experienced negative abnormal stock returns during key events of the crisis. The findings are robust to (i) falsification tests using information on lobbying activities on financial sector issues unrelated to mortgage lending, (ii) instrumental variables strategies, and (iii) a difference-in-difference approach based on state-level lending laws. These results suggest that lobbying may be linked to lenders expecting special treatments from policymakers, allowing them to engage in riskier lending behavior.
Deniz Igan, Prachi Mishra, and Thierry Tressel, Research Department, IMF‡
October 14, 2009
Moderninizing bank supervision and regulationcatelong
This is the testimony of Chris Whalen to the Senate Banking Committee on March 24, 2009 about bank and financial institution regulation and supervision.
This is a free e-book from the London School of Economics. It includes several stand alone chapters. Each one of them is written by a different expert or professor. The main underlying topics include how to manage and prevent future financial crisis. And, what would be the best financial regulatory framework to do just that.
IOSR Journal of Business and Management (IOSR-JBM) is an open access international journal that provides rapid publication (within a month) of articles in all areas of business and managemant and its applications. The journal welcomes publications of high quality papers on theoretical developments and practical applications inbusiness and management. Original research papers, state-of-the-art reviews, and high quality technical notes are invited for publications.
National Economic Survey - Volume I - Chapter 8 Financial Fragility In The NB...DVSResearchFoundatio
OBJECTIVE
National Economic Survey (NES) is the flagship annual document of the Ministry of Finance of the Government of India. It reviews the developments in the Indian economy over the past financial year, summarizes the performance on major development programs, and highlights initiatives of the government and the prospects of the economy in the short to medium term.
Liquidity of an asset has been defined as a degree where asset or security can be bought or sold in the securities market and this sale or purchase is done without harming the asset’s price. Liquidity has its own benefits such as investment in liquid assets than the illiquid ones. The liquid assets can be easily converted into cash which include the blue chip and money market securities. The ease and comfort with which financial instruments such as stocks and bonds are converted into ownership is the main essence of liquid assets (Burke, n.d.). Liquidity problems can arise due to the following business factors such as:
Collecting quality clinical cases is a priotity to document more evidence in medicine, providing a wide data-base allowing research, tuition and high quality reported cases.
Увеличение личных продаж от 3 раз и вышеАртур Хазеев
В шесть лет я уже продал первый ящик фанты. В то время я научился продавать лед: соорудил самодельный сумку холодильник и на авто рынке в жару продавал Coca Cola, а когда она уже заканчивалась продавал лед. А в 10 лет на продаже 0,25 Coca Cola купил себе Sega Mega Drive 2.
This is my Spring 2015 studio project. The 2nd Year Foundation Studio focused on developing an existing parking lot for UVa's sports facilities into a mixed use student housing area. My project focused on creating spaces for interaction between students and fans at the center of game day activity.
This paper focuses on the evolution of global banking regulations set by the Basel Committee on Banking Supervision known as the Basel Accords. We argue that argue that both Basel I and Basel II have failed and we expect the same from Basel III. We believe Basel III will fail because of: i) path dependency on two previous failed accords, ii) delayed implementation, iii) strong pressure from bank-supported lobbyists and finally iv) strong influence of politicians. Rather than proposing new banking regulatory initiatives, we recommend imposing higher personal responsibility for bank managers, regulators and supervisors. As a result, Basel III will not prevent future crises from affecting the global banking industry.
Basel iii Compliance Professionals Association (BiiiCPA)
http://www.basel-iii-association.com
The Basel iii Compliance Professionals Association (BiiiCPA) is the largest association of Basel iii Professionals in the world. It is a business unit of the Basel ii Compliance Professionals Association (BCPA), which is also the largest association of Basel ii Professionals in the world.
Receive (at no cost) the New Member Orientation newsletters:
http://www.basel-iii-association.com/New_Member_Orientation_Newsletters.html
Subscribe to Receive (at no cost) Basel II / Basel III Related News, Alerts, Opportunities, Updates, our Monthly Newsletter and Limited Time Offers for our Basel II / Basel III Training and Certification Programs:
http://forms.aweber.com/form/42/1586130642.htm
Basel Accords - Basel I, II, and III Advantages, limitations and contrastSyed Ashraf Ali
The Basel Accords is referred to the banking supervision Accords (recommendations on banking regulations). Basel I, Basel II and Basel III was issued by the Basel Committee on Banking Supervision (BCBS). They are called the Basel accords as the BCBS maintains its secretariat at the Bank for
International Settlements in Basel, Switzerland and the committee normally meets there. The Basel Accords is a set of
recommendations for regulations in the banking industry.
The impact of Basel III, also known as The Third Basel Accord, will vary by geography -- from potentially slowing down economies in emerging nations, to protecting the European Union from financial collapse, to increasing capital adequacy and improving risk management. Given the framework and timeline for implementing Basel III, the burden falls on national regulators to translate the international guidelines into national policies that suit and stabilize their economic environment and support economic growth.
A set of international banking regulations put forth by the Basel Committee on Bank Supervision, which set out the minimum capital requirements of financial institutions with the goal of minimizing credit risk. Banks that operate internationally are required to maintain a minimum amount (8%) of capital based on a percent of risk-weighted assets.
Quantifi whitepaper basel lll and systemic riskQuantifi
One of the key shortcomings of the first two Basel Accords is that they approached the solvency of each institution independently. The recent crisis highlighted the additional ‘systemic’ risk that the failure of one large institution could cause the failure of one or more of its counterparties, which could trigger a chain reaction.
Basel III addresses this issue in two ways:
1) by significantly increasing capital buffers for risks related to the interconnectedness of the major dealers and
2) incentivising institutions to reduce counterparty risk through clearing and active management (hedging). Since Basel III may not explicitly state how some of the new provisions address systemic risk, some analysis is necessary.
“Basel III is more about improving the risk management systems in the Banks than just Improved Quality and enhanced Quantity of capital”. Please discuss the challenges to the Indian Banks by March,2017
This paper examined the bank-specific determinants for commercial bank’s liquidity in Namibia. The
study was based on quarterly data covering the period 2001:Q1 to 2014:Q2, utilizing the technique of unit root and
ordinary least squares. The results of the unit root test showed that all variable were stationary in levels and thus,
the ordinary least squares technique was used to conduct the estimation. The results revealed a statistical
insignificant negative relationship between commercial bank’s liquidity and return on equity as a measure of
commercial bank’s profitability. Furthermore, the results also showed a positive relationship between commercial
bank’s liquidity and capital adequacy as well as between commercial bank’s liquidity and non-performing loans
though statistical insignificant.
This presentation is the one stop point to learn about Basel Norms in the Banking
This is the most comprehensive presentation on Risk Management in Banks and Basel Norms. It presents in details the evolution of Basel Norms right form Pre Basel area till implementation of Basel III in 2019 along with factors and reason for shifting of Basel I to II and finally to III.
Links to Video's in the presentation
Risk Management in Banks
https://www.youtube.com/watch?v=fZ5_V4RW5pE
Tier 1 Capital
http://www.investopedia.com/terms/t/tier1capital.asp
Tier 2 Capital
http://www.investopedia.com/terms/t/tier2capital.asp
Basel I
http://www.investopedia.com/terms/b/basel_i.asp
Capital Adequacy Ratio
http://www.investopedia.com/terms/c/capitaladequacyratio.asp
Basel II
http://www.investopedia.com/video/play/what-basel-ii/?header_alt=c
Basel III
http://www.investopedia.com/terms/b/basell-iii.asp
RBI Governor - Raghuram G Rajan on the importance if Basel III regulations
https://youtu.be/EN27ZRe_28A
Similar to Basel III - Implications of Implementation (20)
BYD SWOT Analysis and In-Depth Insights 2024.pptxmikemetalprod
Indepth analysis of the BYD 2024
BYD (Build Your Dreams) is a Chinese automaker and battery manufacturer that has snowballed over the past two decades to become a significant player in electric vehicles and global clean energy technology.
This SWOT analysis examines BYD's strengths, weaknesses, opportunities, and threats as it competes in the fast-changing automotive and energy storage industries.
Founded in 1995 and headquartered in Shenzhen, BYD started as a battery company before expanding into automobiles in the early 2000s.
Initially manufacturing gasoline-powered vehicles, BYD focused on plug-in hybrid and fully electric vehicles, leveraging its expertise in battery technology.
Today, BYD is the world’s largest electric vehicle manufacturer, delivering over 1.2 million electric cars globally. The company also produces electric buses, trucks, forklifts, and rail transit.
On the energy side, BYD is a major supplier of rechargeable batteries for cell phones, laptops, electric vehicles, and energy storage systems.
Currently pi network is not tradable on binance or any other exchange because we are still in the enclosed mainnet.
Right now the only way to sell pi coins is by trading with a verified merchant.
What is a pi merchant?
A pi merchant is someone verified by pi network team and allowed to barter pi coins for goods and services.
Since pi network is not doing any pre-sale The only way exchanges like binance/huobi or crypto whales can get pi is by buying from miners. And a merchant stands in between the exchanges and the miners.
I will leave the telegram contact of my personal pi merchant. I and my friends has traded more than 6000pi coins successfully
Tele-gram
@Pi_vendor_247
The European Unemployment Puzzle: implications from population agingGRAPE
We study the link between the evolving age structure of the working population and unemployment. We build a large new Keynesian OLG model with a realistic age structure, labor market frictions, sticky prices, and aggregate shocks. Once calibrated to the European economy, we quantify the extent to which demographic changes over the last three decades have contributed to the decline of the unemployment rate. Our findings yield important implications for the future evolution of unemployment given the anticipated further aging of the working population in Europe. We also quantify the implications for optimal monetary policy: lowering inflation volatility becomes less costly in terms of GDP and unemployment volatility, which hints that optimal monetary policy may be more hawkish in an aging society. Finally, our results also propose a partial reversal of the European-US unemployment puzzle due to the fact that the share of young workers is expected to remain robust in the US.
The secret way to sell pi coins effortlessly.DOT TECH
Well as we all know pi isn't launched yet. But you can still sell your pi coins effortlessly because some whales in China are interested in holding massive pi coins. And they are willing to pay good money for it. If you are interested in selling I will leave a contact for you. Just telegram this number below. I sold about 3000 pi coins to him and he paid me immediately.
Telegram: @Pi_vendor_247
How to get verified on Coinbase Account?_.docxBuy bitget
t's important to note that buying verified Coinbase accounts is not recommended and may violate Coinbase's terms of service. Instead of searching to "buy verified Coinbase accounts," follow the proper steps to verify your own account to ensure compliance and security.
Introduction to Indian Financial System ()Avanish Goel
The financial system of a country is an important tool for economic development of the country, as it helps in creation of wealth by linking savings with investments.
It facilitates the flow of funds form the households (savers) to business firms (investors) to aid in wealth creation and development of both the parties
What website can I sell pi coins securely.DOT TECH
Currently there are no website or exchange that allow buying or selling of pi coins..
But you can still easily sell pi coins, by reselling it to exchanges/crypto whales interested in holding thousands of pi coins before the mainnet launch.
Who is a pi merchant?
A pi merchant is someone who buys pi coins from miners and resell to these crypto whales and holders of pi..
This is because pi network is not doing any pre-sale. The only way exchanges can get pi is by buying from miners and pi merchants stands in between the miners and the exchanges.
How can I sell my pi coins?
Selling pi coins is really easy, but first you need to migrate to mainnet wallet before you can do that. I will leave the telegram contact of my personal pi merchant to trade with.
Tele-gram.
@Pi_vendor_247
What price will pi network be listed on exchangesDOT TECH
The rate at which pi will be listed is practically unknown. But due to speculations surrounding it the predicted rate is tends to be from 30$ — 50$.
So if you are interested in selling your pi network coins at a high rate tho. Or you can't wait till the mainnet launch in 2026. You can easily trade your pi coins with a merchant.
A merchant is someone who buys pi coins from miners and resell them to Investors looking forward to hold massive quantities till mainnet launch.
I will leave the telegram contact of my personal pi vendor to trade with.
@Pi_vendor_247
what is the future of Pi Network currency.DOT TECH
The future of the Pi cryptocurrency is uncertain, and its success will depend on several factors. Pi is a relatively new cryptocurrency that aims to be user-friendly and accessible to a wide audience. Here are a few key considerations for its future:
Message: @Pi_vendor_247 on telegram if u want to sell PI COINS.
1. Mainnet Launch: As of my last knowledge update in January 2022, Pi was still in the testnet phase. Its success will depend on a successful transition to a mainnet, where actual transactions can take place.
2. User Adoption: Pi's success will be closely tied to user adoption. The more users who join the network and actively participate, the stronger the ecosystem can become.
3. Utility and Use Cases: For a cryptocurrency to thrive, it must offer utility and practical use cases. The Pi team has talked about various applications, including peer-to-peer transactions, smart contracts, and more. The development and implementation of these features will be essential.
4. Regulatory Environment: The regulatory environment for cryptocurrencies is evolving globally. How Pi navigates and complies with regulations in various jurisdictions will significantly impact its future.
5. Technology Development: The Pi network must continue to develop and improve its technology, security, and scalability to compete with established cryptocurrencies.
6. Community Engagement: The Pi community plays a critical role in its future. Engaged users can help build trust and grow the network.
7. Monetization and Sustainability: The Pi team's monetization strategy, such as fees, partnerships, or other revenue sources, will affect its long-term sustainability.
It's essential to approach Pi or any new cryptocurrency with caution and conduct due diligence. Cryptocurrency investments involve risks, and potential rewards can be uncertain. The success and future of Pi will depend on the collective efforts of its team, community, and the broader cryptocurrency market dynamics. It's advisable to stay updated on Pi's development and follow any updates from the official Pi Network website or announcements from the team.
Falcon stands out as a top-tier P2P Invoice Discounting platform in India, bridging esteemed blue-chip companies and eager investors. Our goal is to transform the investment landscape in India by establishing a comprehensive destination for borrowers and investors with diverse profiles and needs, all while minimizing risk. What sets Falcon apart is the elimination of intermediaries such as commercial banks and depository institutions, allowing investors to enjoy higher yields.
where can I find a legit pi merchant onlineDOT TECH
Yes. This is very easy what you need is a recommendation from someone who has successfully traded pi coins before with a merchant.
Who is a pi merchant?
A pi merchant is someone who buys pi network coins and resell them to Investors looking forward to hold thousands of pi coins before the open mainnet.
I will leave the telegram contact of my personal pi merchant to trade with
@Pi_vendor_247
Financial Assets: Debit vs Equity Securities.pptxWrito-Finance
financial assets represent claim for future benefit or cash. Financial assets are formed by establishing contracts between participants. These financial assets are used for collection of huge amounts of money for business purposes.
Two major Types: Debt Securities and Equity Securities.
Debt Securities are Also known as fixed-income securities or instruments. The type of assets is formed by establishing contracts between investor and issuer of the asset.
• The first type of Debit securities is BONDS. Bonds are issued by corporations and government (both local and national government).
• The second important type of Debit security is NOTES. Apart from similarities associated with notes and bonds, notes have shorter term maturity.
• The 3rd important type of Debit security is TRESURY BILLS. These securities have short-term ranging from three months, six months, and one year. Issuer of such securities are governments.
• Above discussed debit securities are mostly issued by governments and corporations. CERTIFICATE OF DEPOSITS CDs are issued by Banks and Financial Institutions. Risk factor associated with CDs gets reduced when issued by reputable institutions or Banks.
Following are the risk attached with debt securities: Credit risk, interest rate risk and currency risk
There are no fixed maturity dates in such securities, and asset’s value is determined by company’s performance. There are two major types of equity securities: common stock and preferred stock.
Common Stock: These are simple equity securities and bear no complexities which the preferred stock bears. Holders of such securities or instrument have the voting rights when it comes to select the company’s board of director or the business decisions to be made.
Preferred Stock: Preferred stocks are sometime referred to as hybrid securities, because it contains elements of both debit security and equity security. Preferred stock confers ownership rights to security holder that is why it is equity instrument
<a href="https://www.writofinance.com/equity-securities-features-types-risk/" >Equity securities </a> as a whole is used for capital funding for companies. Companies have multiple expenses to cover. Potential growth of company is required in competitive market. So, these securities are used for capital generation, and then uses it for company’s growth.
Concluding remarks
Both are employed in business. Businesses are often established through debit securities, then what is the need for equity securities. Companies have to cover multiple expenses and expansion of business. They can also use equity instruments for repayment of debits. So, there are multiple uses for securities. As an investor, you need tools for analysis. Investment decisions are made by carefully analyzing the market. For better analysis of the stock market, investors often employ financial analysis of companies.
2. 2
Table of Contents
Executive Summary ...................................................................................................................... 2
Introduction.................................................................................................................................3
Basel III........................................................................................................................................4
Background.............................................................................................................................. 5
Previous Basel Accords - Shortcomings....................................................................................... 5
New Capital Requirements............................................................................................................ 7
Description............................................................................................................................... 8
Impact on Banks Global Lending Activity .................................................................................... 8
Countercyclical Capital................................................................................................................ 10
The Concept........................................................................................................................... 11
Effects on Banking System....................................................................................................... 11
Summary ................................................................................................................................... 13
References................................................................................................................................. 14
Executive Summary
This report has been commissioned to give an investigative insight into the implementation
of Basel III; the implications of implementing, previous accords and also the impact this has
on various systems and activities. It will explore the previous shortcomings of the accords,
aswel as the new requirements. There will be a brief description on each topic as well as a sound,
but critical analysis of the impact upon each of these, caused by Basel III. Topics include: Basel III,
previous accords, Global Bank Lending and the Bank System.
It incorporates a variety of information sources to gain a broader understanding of
viewpoints and effects, but will focus largely on Bank Behaviour in Response to Basel III: A
Cross-Country Analysis by Thomas F. Cosimano and Dalia S. Hakura (2011).
The analysis and information found herein have been commissioned by the Chief Financial
Officer (CFO) of this Banking Institution.
3. 3
Introduction
Basel III is the latest Basel Accord established by the Basel Committee on Banking
Supervision. Its aim is to strengthen global capital standards by applying universal
regulations to banks. Basel III was a response to the financial crisis of 2008 and hopes to
prevent a similar collapse from happening again.
5. 5
Background
In August 2007 BNP Paribas; ones of the world’s largest banks, became the first global bank
to acknowledge the risk of exposure to sub-prime mortgage markets (Kingsley, 2012). This is
event is widely accepted as the first sign of the forthcoming recession, which would become
the worst in over 80 years (The Economist, 2013).
Little than a month later British bank Northern Rock applied for a bailout loan from the Bank
of England as it found it difficult to find a cash lender to fund its day to day operations (BBC,
2007), leading to the first ‘bank run’ in 150 years (Globalisation and Health, 2008).
This financial crisis sparked the Basel Committee on Bank Supervision (BCBS) to establish the
Basel III reforms and put in place systems that would aid in the prevention of a similar
situation reoccurring in the future.
Basel III was, as the name suggests, the third accord established by the BCBS, with each
previous accord also being a response to some form of financial crisis. However, each accord
has had its shortcomings, creating the need for a newer and better ‘versions’.
Previous Basel Accords - Shortcomings
Basel I was established in similar situations almost 40 years ago when a German bank had its
license revoked due to foreign exchange exposures three times that of its capital. This had a
domino effect which meant many German banks incurred huge foreign exchange losses,
with one New York bank closing its doors the same year due to the same problem (BIS,
2014).
The main focus on Basel I was to strengthen the stability of the international banking system
and diminish existing sources of competitive inequality among international banks. Basel I
was the first attempt at incorporating (credit) risk into capital requirement calculations.
A downfall of Basel I was its lack of differentiation of credit risk within commercial loan
classifications. This meant that the required capital was always set at 8%, disregarding the
credit rating and collateral offered by borrowers.
This lead to commercial lending risk being mispriced which encouraged banks to push
forward under-priced portfolios, ultimately leading to a degraded the quality of portfolio
credit.
6. 6
The shortcomings of Basel I encouraged a more considered approach within Basel II rather
than focusing solely on credit risk. Basel II introduced the concept of risk-based capital
requirements – the minimum capital a bank must set aside according to its risk, a clear
improvement from the “one size fits all” approach of Basel I (Hanson, Kashyap and Stein,
2003).
Basel II also tackled the fixed risk weighting that each risk category carried in Basel I by
introducing risk weights determined by the borrower’s external credit rating (Council of
Mortgage Lenders, 2013). This gave a more accurate and borrower specific risk weighting
than Basel I, which had a tendency with most of its procedures to go with one rate for
everyone, regardless rule.
However, Basel II was not without fault, one of the many problems noted in Basel II was its
method of measuring financial risk – “Value at Risk” (VaR). It is proposed by the LSE
Financial Markets Group (2001) that VaR can destabilise an economy, inducing crashes
which otherwise would not occur. Further, they state that risk is endogenous and this is
ignored completely by Basel II’s use of VaR.
Basel II also created a problem by giving banks the option to use their own models for
assessing risk and determining required capital, which leaves banks open to manipulate this
option. Banks may be overoptimistic about their exposure so to minimise regulatory capital
and maximise the return on equity (Benink, 2015).
It’s clear to see that from each new Basel accord, problems arise, maybe due to a flaw in the
accord, or maybe due to institutions looking to make the most of the accords give, i.e. Basel
II freedom of internal models.
8. 8
Description
The introduction of Basel III brings with it a higher equity-asset ratio, so the largest banks
would have to increase their ration from 5.7% to 7% (Cosimano, 2011). These largest have
to maintain significantly above the minimum levels of required capital against all assets,
even those deemed non-risky (Armour and Tracy, 2015).
The aim of new capital requirements is to strengthen the risk coverage of the capital
framework. By doing this BCBS hopes to negate on and off balance sheet risks to avoid a
future destabilising banking situation which could lead to another crisis.
The increased capital requirements are a prudential step to act as a safety to fall back on
should another crisis occur. Not only that, but by simply building the buffers, the likelihood
of another crisis is lessened, as capital is the most expensive form of funding and so credit
will not build as quickly.
The Bank of England (2011) reports that the Capital Requirements Directive IV (CRD IV) is a
legislative package that intends to implement Basel III agreement through the EU. Enhanced
quality and quantity of capital and new rules for counterparty risk are both included in the
package.
Impact on Banks Global Lending Activity
The new higher capital requirements would mean that banks will have to marginally
increase their cost of loans. This in turn could decrease loan growth as fewer parties are
willing to take out loans at this higher cost, in turn holding back economic recovery (Thomas
Cosimano, 2011).
The cost of raising the equity-asset ratio varies considerably between countries; with non-
crisis countries feeling the greatest impact. These non-crisis countries, such as Japan and
Denmark are likely to have low elasticity of loan demands with regards to loan rates, hence
why they would feel the greatest impact. This is demonstrated by the net cost of raising
equity by 1.3% in Japan of 26 basis points. Hence, Japan would have to increase its loan
rates by 26 basis points to achieve the Basel III 7% equity to risk-weighted asset ratio
(Cosimano, 2011).
Countries that are most effected will then have the opportunity to explore why the impact
of increasing equity is so large, is it due to the cost of equity, if so why? This also gives banks
9. 9
the opportunity to manipulate their lending rates elasticity or cost of equity to meet the
requirements of Basel III.
Under Basel III banks must maintain equilibrium of loans and deposits, so when equilibrium
is not reached they must engage in cross-selling and make deposits/take out loans with
other banks. This encourages a more intimate relationship with clients, which will benefit
both banks by establishing themselves as having an operational relationship, meaning
during periods of distress, their losses are decreased. This will also encourage a more
traditional banking system, another objective of Basel III.
Thomas Cosimano (2011) also finds that even though the change in lending rate is not
substantial, it may encourage banks to move from traditional banking activities to ‘shadow
banking sector’. If this occurs then BSBC will also have to include regulations/reforms for the
shadow sector, otherwise banks will have found a way out of avoiding the increase in loan
rates.
11. 11
The Concept
The aim of Countercyclical Capital is to provide a buffer of capital to achieve broad
protection of the banking sector from periods of excess aggregate credit growth – strongly
linked to system wide shocks i.e. recessions (BCBS, 2010).
One of the key objectives of Basel III is to reduce pro-cyclicality; this is achieved through the
use of the countercyclical buffer. Ensuring that if the economy were to crash again, banks
and their lending would not also coming to a halt, as this worsens the problem, but instead
continues to lend by maintaining the before mentioned buffer.
In periods of growing systemwide distress a capital ‘defence’ buffer should be built up. The
building up of these buffers should also benefit the economy by helping moderate excessive
credit growth, as capital is a more expensive form of funding. These periods can also lead to
a 2.5% increase in capital ratios.
If these buffers were not in place and the lending of banks was left to be procyclical;
financial stress/recessions are more likely to occur, and when they do, because of the
procyclical nature, borrow from banks will be though/ more expensive. This could
potentially lead to defaults and closures of many businesses, which would in turn affect the
banks again. Countercyclical capital not only helps to prevent recessions, but also ensures
that if one does occur, the situation is not worsened.
Effects on Banking System
Banks must always have enough capital to comply with the stress tests and meeting the
minimum capital requirement of stress periods. Basel III insists that banks limit the size of
their activities in relation to their capital. This will help prevent excessive capital credit
growth, rather than a bank lending/depositing too much.
This buffer ensures that credit growth is reduced during times on economic growth and
attenuate credit contraction once it is released; lessening procyclicality when capital levels
are high, increasing the banking sectors resistance to shock (Drehmann, 2011).
BIS (2011) also found that in Brazil, during an economic downturn, the amount of capital
buffer will rise whilst the growth of loans simultaneously decreases.
Evidence also suggests that periods of excessive credit growth should be co-ordinated with
decisions regarding monetary policy. Thus this will differ from country to country as each
country has its own monetary policy and regulations.
12. 12
Basel III accord aims to fundamentally strengthen global capital standards by emphasising
focus on banks’ ability to cope in financial stress by regular ‘stress testing’.
It aims to reduce the reliance on banks internal models, as this is what was previously
manipulated in Basel II to achieve more attractive financial results for the banks.
Further, it would also like to reduce reliance of external ratings and so has indicated that
risk-weighted assets will increase due to an enhanced risk coverage with relation to capital
market activities (Whitecase, 2011) also incorporating elements of IOSCO that require banks
to conduct their own internal assessments of external rates.
Basel III would also like banks to reduce the size of their balance sheets, so they do not
become ‘too big’ in relation to their capital, as this is more risky for the economy. Chami and
Cosimano (2010) identified the optimal holding equity of banks at 1.3%
13. 13
Summary
Past Basel Accords have all had minor downfalls, but each has been significantly better at
ensuring a stable market than the last. Basel III has many benefits compared to the most
recent Basel accord but and seems to be going the right way to ensuring the economy is
protected, or at least prepared for any sudden downturns. In theory it appears to be a
technically sound system, with a few areas that could be modified slightly – and am sure
they will be in future updates. However, only time will tell if it can be truly effective in the
real world.
14. 14
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