Analysis Of Basel III

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a) CET1 ratio

According to the result in Table 11, the CET1 ratio is statistical significant in the model under 10% level of significance and has a positive relationship with the crisis, although it is not as expected. If simply analyze from the empirical result, 1 percentage point increase of the common equity core tier 1 ratio would increase the probability of the financial crisis by 11.23833 percentage point when all other variables remain unchanged.

In practice, Basel III is an international regulatory accord that introduced a set of reforms designed to improve the regulation, supervision and risk management within the banking sector. A focus of Basel III is to foster greater resilience at the individual bank level in order to …show more content…

Consequently, the CET1 ratio are supposed to have a negative relationship with the probability of the burst of the financial crisis.

b) RWA ratio

The RWA ratio is not statistical significant in our model and the potential reason has been discussed. As shown in the line graph in the Appendix 3, the RWA ratio of the sample countries showed a trend of fluctuating downward during the period of 2005 to 2016, except China. The RWA ratio of China rose with fluctuations during the period of 2005 to 2012, then it declined gradually after 2013. In addition, the RWA ratio of the other nine countries declined sharply in the 2008 financial crisis, which might cause the increase of the CET1 ratio during the crisis. Even after 2008, the RWA ratio of several countries still decrease gradually, which is a manipulation by the banking industry. Moreover, the RWA ratio of Greece decreased significantly from 2008 to 2010, and it indicated that Greece suffered both financial crisis and debt crisis.

Purely focus on the risk-weighted asset itself, following the financial crisis, it has become quite important in terms of determining a bank's risk and a potential for calamity. Risk-weighted assets are the amount of bank’s assets such as stocks,

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