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COMMERCIAL BANKS AND NEW CAPITAL REGULATION Essay

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COMMERCIAL BANKS AND NEW CAPITAL REGULATION

MAF 202 - GROUP ASSIGNMENT

Prepared By Group 26:

Simardeep Sran - 211689444

Due: September 12, 2013

School of Accounting, Economics and Finance
Deakin University, Burwood Campus
August 30, 2013

Dear John Ovens,

Letter of Transmittal

We wish to present to you a research report regarding commercial banks and new capital regulation prepared through collective collaboration between members of group 26.

During the first meeting, our group has made a clear goal to achieve every week till the submission date. This required us to delegate task accordingly. To start off, Simar had prepared a…show more content…
Additionally, the committee has proposed new capital adequacy standard, namely Basel III, to compensate for the shortcomings of Basel II. The following are the two interrelated factors that may have led the committee to consider a move from Basel II to Basel III.

2.1.1. Factor 1

It can be argued that the global financial crisis (GFC) shook the foundation that the global economy was built upon. APRA (2012, p.3) indicated that the primary reason behind the cause of GFC was disproportionate amount of leverage and ‘…gradual erosion of level and quality of capital base…’ that the banking sectors had accumulated. During the onset of GFC, the holdings of the banks were insufficient to cover their losses leaving some of them insolvent. Despite the popular belief, APRA (2012) explicitly claims that ‘Australia was not immune from these impacts’. It is in fact true that Australian banks didn’t take on the similar banking activities on a big scale that the US banks undertook, the point still remains that the global economy is interconnected and the lack of consistency, resilience and transparency in international banking system can cause more cataclysmic crisis’ (Edey 2011). This may be why the APRA, in compliance with Basel Committee on Banking Supervision has considered a move to Basel III with an attempt to minimise or eliminate the impact financial crisis’ having on banks.
Despite its full introduction in 2008, Basell II has been guiding investment decisions
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