International Convergence Of Capital Measurement And Capital Standards

Managing a Bank crisis is one of the most difficult tasks of a regulator. Banks and financial institutions had to take counter measures in order to survive and remain competitive. Efficient regulatory framework identifies the benefits of a sustainable financial system. It helps the organizations to work efficiently, objectively and the country will have transparent markets. Regulatory system is open minded to the needs of investors when implementing directions to curtail regulations for certain types investment related products and services. It also maintains accountability with respect to market participants and policy makers.

Basel III is a regulatory reform measures to improve the banking regulation, supervision and risk management. Basel III was published in 2009 and mainly because of widespread of credit crisis of global banking system. Therefore, the banks must maintain sufficient capital and proper leverage at any point in time. We also know that Basel III is implemented right after Basel I and II, its main changes are to enhance the stability of banking system when facing financial crisis and economic downturn. Apart from that, the content of banks’ risk management and transparency are also strengthened. The volatility of banking system can thus be reduced through strictly enforced Basel III standard and requirements.

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.

The reality of systemic risk made the task of regulating the financial system increasingly complicated, as the crises aren’t contained in one country or market. The extreme inter-dependence between the different agents is the main reason why we need regulation today, as some misconducts can cause a domino effect, affecting markets globally. The structure of the banking system in itself explains this process. In the finance industry, banks borrow money from other banks. If one bank fails, the one who lent the funds in the first place might also follow the same path, creating panic in the markets. The government’s first prerogative is to protect its citizens from these

First, high capital requirements could enable institutions to be more flexible facing financial stress and crises. Second, the CFPB strengthens the oversight responsibilities, lessens the regulatory infrastructure risky gaps, and improves the protection for consumers. Third, the Federal Deposit Insurance Corporation’s (FDIC) single-point-of-entry strategy installs standard procedures to wind down failed financial institutions,

The 2008 financial crisis should not be the last one readers will experience, but this paper would like to present a picture of how it unfolded and where went wrong, so that hopefully we can learn from it. This paper will address some post-crisis regulations and why regulators responded this way. It concludes that the key is to carry out reforms addressing the moral hazard issue deeply in our current financial system.

The financial crisis of 2008 turned the world upside down. It is said to be the worst financial situation for the United States since the Great Depression in the 1930’s. Millions of people all over the country lost their jobs, retirement funds, and even houses. After all this chaos and distress, the United States government still bailed out the banks that were supposedly ‘too big to fail’. There were many things that attributed to the big banks going under. Some of the factors that caused these banks to crash were high risk transactions, a very complex financial market, and even the lack of regulation throughout the industry (DeGrace). Although these played a large role in the

This paper is about the financial crisis in 2008 and how it all started as well as the ways that banking has operated and is operating today. I have watched all of Chairman Bernanke’s college lecture videos and he has gone into many different aspects of banking including how the Federal Reserve began, what lead to the recent financial crisis, and what we are doing as a nation to see what we can do to help eliminate from happening again. First, I will be summarizing Chairman Bernanke’s four lectures he did in 2012 at George Washington University.

The 2008 US financial crisis triggered global economic shocks, not only profound influence or even change the financial pattern of the world economy, but also a vivid lesson to the global banking industry. After the outbreak of the crisis, the United States Government has put forward the toughest financial reform bill for decades, expanding market intervention, and with economic globalization and financial liberalization, we need to absorb the experience and lessons of American banking system reform in the context of financial crisis. Citigroup is a typical example of the bank that influenced by the financial crisis and restructured.

The recent financial crisis has a huge impact on systemic Important Financial Institutions; it’s distressing effect can be felt in almost every business area and process of a bank. A fairly large literature investigates the impact of financial crisis on large, complex and interconnected banks. The great recession did affect banks in different ways, depending on the funding capability of each bank. Kapan and Minoiu (2013) find that banks that were ex ante more dependent on market funding and had lower structural liquidity reduced supply of credit more than other banks during crisis. The ability of banks to generate interest income during the financial crisis was hampered because there was a vast reduction in bank lending to individuals and

The financial crisis of 2008 has been, so far, the worst financial meltdown of today’s generation. The crisis not only brought a halt to the banking system as we know it, caused major financial institutions to close their doors for good, but required a Government bailout in order to stabilize the failing economy. The eventual collapse of the established institutions and the recession that followed, caused the finance industry to re-think their position and ideology on their operating practices so that the same type of occurrence would not repeat itself again.

The crises showed just how interconnected the banking system is throughout the world. The Lehman Brothers bank closure in 2008 created a major financial crisis around the world due to its influence (The Economist, 2013). It took the government’s massive bail outs to prevent total collapse of the financial system and to some extent economic collapse of the country. This government action set a precedent and to some sent a message that the reckless action by the banks in the name of profit is fine because they now have a safety net. It is a good example of how the collapse of a big financial institution that has national and global influence can affect several interrelated firms to the detriment of the country’s economic interests. This paper therefore, examines the notion “too big to fail” in relation to banking.

During the run-up to the Global Financial Crisis (GFC) 2008 there were numerous contributing factors. One can observe the start of the crisis as a cascading timeline starting possibly decades earlier with the change to a deregulatory culture. The prevailing political environment in the lead up to the financial crisis was one of de-regulation with a focus to economic expansion. This political imperative towards deregulation started under President Reagan in the US and culminated at the turn of the century with the actions such as the repealing of the Glass Steagall Act. The economic environment in the run-up to the GFC was, as Mervyn King put it, a NICE period, No Inflation Constant Expansion, with the general opinion being that markets were on the up and would be so indefinitely. This environment lead to a lackadaisical attitude towards regulatory standards and circumvented caution in regards to the occurrence of financial crises.

The importance of central banks is derived from their main objectives - the pursuit of price stability, stable economic growth, interest rate and exchange rate stability. If disturbances occur in markets, central banks can use the tools of monetary policy and stabilize the mentioned variables (Richter, Wahl, 2011). The immediate task for central banks during the 2007-2008 crisis was to avoid a market collapse due to low liquidity and to mitigate the panic which emerged with deteriorating trust in financial institutions. As data presented by Ivashina and Scharfstein demonstrate, the level of lending in the United States plummeted by staggering 47% between the third and fourth quarter in 2008 to almost one seventh of the 2007 financial peak (from $701.5billion to $150.2billion) (Ivashina, Scharfstein,

This chapter is about the background of 2007-2008 financial crisis. The 2007-2008 financial crisis has a huge impact on US banking system and how the banks operate and how they are regulated after the financial turmoil. This financial crisis started with difficulty of rolling over asset backed commercial papers in the summer of 2007 due to uncertainty on the liquidity of mortgage backed securities and questions about the soundness of banks and non-bank financial institutes when interest rate continued to go up at a faster pace since 2004. In March 2008 the second wave of liquidity loss occurred after US government decided to bailout Bear Stearns and some commercial banks, then other financial institutions took it as a warning of financial difficulty of their peers. In the meantime banks started hoarding cash and reserve instead of lending out to fellow banks and corporations. The third wave of credit crunch which eventually brought down US financial system and spread over the globe was Lehman Brother’s bankruptcy in August 2008. Many major commercial banks in US held structured products and commercial papers of Lehman Brother, as a result, they suffered a great loss as Lehman Brother went into insolvency. This panic of bank insolvency caused loss of liquidity in both commercial paper market and inter-bank market. Still banks were reluctant to turn to US government or Federal Reserve as this kind of action might indicate delicacy of