Analysis Of Basel III

In 2008, when the financial crisis occurred, millions of Americans were left without jobs and trillions of dollars of wealth was lost wealth. To make sure the Great Recession would not happen again, President Barrack Obama put into effect the Dodd- Frank Act. With the help of this law, banks will not be able to take irresponsible risks that had negative effects on the American people. Furthermore, with the Volcker Rule embedded into the act, it will ensure that banks are no longer allowed to own, invest, or sponsor hedge funds, private equity funds, or proprietary trading operations for their own profit, unrelated to serving their

1. a) A bank has risk-weighted assets of $175 and equity of $12.5. If regulators require a minimum risk-weighted capital ratio of 5% given the current level of equity, how many new assets with a 100% risk weight can the bank add? How many with a 50% risk weight? b) If the bank had 20% more equity, how many new assets with a 100% risk weight could the bank add? How many with a 50% risk weight? How does having more equity affect a bank's ability to grow? How is this growth affected by the riskiness of the bank's assets?

The second and chief objective is to assess the impact of the crisis on the foreign exchange and stock markets. The report answers why the crisis adversely affected the Latin American market indices while the US market indices continued to rise.

The Bank’s Tier 1, Total capital, and Assets-to-Capital multiple ratios were 13.0%,16.0%, and 17.2%, respectively, on October 31, 2011, compared with 12.2%, 15.5%, and 17.5%, respectively, on October 31, 2010.(Refer to Appendix 2) These changes over the period were influenced by increases in Tier 1 capital and Risk Weighted Assets. Risk Weighted Assets

A macroeconomic item (or factor) may be generally categorized as anything that influences the direction of a particular large-scale market (Investopedia, n.d.). For this analysis, the macroeco-nomic factor shall be interest rate (i.e. discount rate). The following sections that scrutinize the implications of changes to interest rates to the Company’s Present Value* (PV), based on its Free Cash Flows* (FCF); discuss the impact of an issue within the overall stock market on the Com-pany’s stock valuation numbers, other financial variables, or its overall portfolio management; and analyze and discuss the impact of an external factor to the Company.

There are three challenges to regulating systematic risk: 1) Identifying and measuring the systemic risk of financial firms 2) Developing, based on systemic risk measures, an optimal policy whose

Firstly, the Dodd–Frank Act pushes forward the reformation of America's financial regulatory system. Several new regulatory authorities are set up to enhance the government supervision and administration of the industry. The Financial Stability Oversight Council is established to identify material risks to financial stability, with the support from Office of Financial Research. Moreover, Fed is entitled to exercise additional superintendence beyond banks.

The Dodd-Frank Regulatory Reform Act is one of the most influential regulations in response to the financial crisis. This acts primary focus is to prevent future financial system collapses, by reducing excessive risk taking by financial institutions and by protecting the consumers (Rose & Hudgins, 2013). In addition, the Dodd- Frank Act gives the Federal Reserve the authority to monitor financial institutions and gives them the power to restructure or liquidate firms that are financially inadequate (Investopedia, 2010). Fortunately, since the 2008 financial crisis a number of new regulations have been enacted, the Dodd-Frank Act is the most monumental new regulation, because it seeks to prevent future bank bailouts and the risky behaviors of financial institutions. While these regulations may not be enough to fully prevent another financial crisis, the necessary steps have been taken to minimize the disastrous effects of overt risk taking by financial

The primary measure used by regulators and analysts to measure a bank’s capital strength is the Tier 1 capital ratio. Analyzing this ratio indicates the strength and the bank’s ability to

The Dodd-Frank Act put a considerable burden on financial regulators whom have to work out the details in order to implement its vision. It includes a variety of points relating to the prevention of a future crisis (Kim & Muldoon 2015). Some of these major points include: (1) The creation of a new Financial Stability Oversight Council, comprising existing regulators, to be responsible for overseeing any financial institution or set of market circumstances determined to be likely to result in risk to the overall economy, (2) A reallocation of banking oversight responsibility among the Federal Reserve System, the Comptroller of the Currency, and the FDIC, requiring the Federal Reserve Board to supervise nonbank financial companies “that may

6. Discuss the need for various domestic regulations to supplement Basel III, explaining why some countries have chosen not to implement Basel III.Students will receive a Case Note on which to base their case analysis in response to the questions below. You will find it useful, if you do not have exposure to the case method, to review “How to Write a Case-Based Essay” [by William Ellet - provided].

By including operational risk in the calculation metrics for the New Capital Accord, Basel II has recognized that credit and market risks are not the only exposures that a bank may face. The complexity of calculating operational risk is, however, compounded by the fact that the internal loss history of a financial institution does not adequately account for all the operational risks and exposures faced by that institution.

Since the onset of the financial crisis 2008, the sovereign debt crisis in western economies and the new financial regulation with Basel III coming up, the financial industry faces the challenge of reinventing itself. The ring-fence for Commercial and Investment Banking, and new economic and regulatory capital requirements will determine the kinds of products banks will be able to distribute. It will have a huge impact in the Investment Banking business, which will suffer tough regulation and supervisory procedures. At the same time, credit risk models will be reviewed because they have failed to predict the crisis of 2008. The current financial and economic crisis doesn’t have any precedent in the past.

| Economic * Financial crisis and impacts on the capital markets : volatility, affected liquidity, higher risk perception * Decline of exchange rate for US dollar * Recession in western Europe * Downturn in industries such as automobiles, construction, energy... * Influence of energy prices

The pre-Basel III requirement for major banks is APS 210. APS210 requires financial institutions liquidity must suffice for two operating scenarios: going-concern scenario, to model the expected behavior of CFs in the ordinary course of business for at least 15 months; and bank-specific name crisis, which requires available liquidity to keep the bank operating for at least five business days. According to APRA, HQLA include cash, bank bills and CDs issued by financial institutions and at-call deposits (APRA, 2008).