Commercial banks are the main type of financial institution that operates within a financial system. Because of the importance of commercial banks in supporting economic growth, the regulators have prescribed prudential standards for supervision of the banking sector. One such standard relates to capital adequacy. The Bank of International Settlements established a permanent committee, the Basel Committee on Banking supervision, to develop capital standards. The Basel I accord was introduced in 1988; the Basel II capital accord had been implemented in most countries by January 2008. Recently, the Committee in order to increase the resilience of the Banking sector is considering moving to Basel III from 2013.
Commercial Banks And New Capital Regulations
Basel Committee on Banking Supervision is the international Body working on setting regulations to foster global banking system. Basel-II was introduced by the Basel Committee. Then, in the light of global financial crisis, Basel Committee introduced an enhanced version of in the form of Basel-III for banking regulations for its member countries. Its member countries include Argentina, Australia, Belgium, Brazil, Canada, China, France, Germany, Hong Kong SAR, India, Indonesia, Italy, Japan, Korea, Luxembourg, Mexico, the Netherlands, Russia, Saudi Arabia, Singapore, South Africa, Spain, Sweden, Switzerland, Turkey, the United Kingdom and the United States. This report discusses the issues, arguments and implications around the introduction of Basel-III.
Factors That Led To Basel-III
If we go back to the roots of introduction of Basel standards, it was introduced and conceived to be minimum standards for the global banking system. The institutions across the globe have been free to go above the standards and have more stringent regulations. The expectation was that the local bodies would come up with their own version over and above the minimum Basel standards to cater to the challenges faced locally (Edey, M. 2011).
However, the Basel committee has to come up with more sophisticated and stringent version of Basel Standard in the form of Basel-III. Among the factors leading to the introduction of Basel-III, the most important factor was the learning from 2008 financial crisis. The global economy faced financial crisis of grave nature in 2008 in spite of the fact that Basel-II was in place. It clearly indicated the need to reform the Basel standards.