Task 1.What are the main factors that have led the regulators to consider a move from Basel II to the Basel III?
Task 2.What are the main features of the Basel III and how do they differ from Basel II?
Task 3.What are the implications for the banks as a result of this new regulation?
Commercial Banks And New Capital Regulations
Commercial Banks have a critical role to play in the financial systems globally. They help meet the financial needs of the business and fuel the economic growth. Commercial Banks help borrowers with easy access to funds, both during the initial business set up and it sustenance by way of Working Capital. Being such an integral role player the financial regulators need to monitor the banking operations to ensure smooth, stable system. Capital requirement is one of these financial stability measures which aim at adequate fund provision and the security (Lall, 2009, p. 43-46).
Globally, the Bank for International Settlements (BIS) aims at assisting the central banks in pursuing monetary and financial stability and to foster international cooperation among themselves. The disordered liquidation of a Cologne-based bank in 1974 prompted the formation of Basel Committee. The Basel Committee on Banking Supervision came up with first of Basel Accord prescribing minimum capital standards for the banks so as ensure sound financial health. These Basel I norms were introduced in 1988 and marked universal acceptance. Subsequently, over the years to meet the requirements of ever evolving global financial systems, the Basel II Accords were introduced and implemented by most of the countries by 2008.
In spite of such prudent financial regulatory measures, the global financial system was badly shaken up during late 2000s financial crisis. Big and seemingly stable banking organizations collapsed leading to global financial crisis. This challenged the adequacy of existing regulatory norms and prompted for formulation of even stringent guidelines for banking operations. Basel III norms came up to further strengthen the global financial system by preventing and protecting from such crisis (BCBS, 2010d, p. 32).