Key Supervisory Issues And Improvement Of Banking Regulation

1374 WordsApr 17, 20166 Pages
The financial instability of the past few years has provided important evidence that can be used for the detection of dangerous flaws in the international banking system. After the financial crisis of 2008- 2009, the Basel Committee on Banking Supervision made significant steps in improving understanding the key supervisory issues and improvement of banking regulation worldwide. Subsequently, new standards were created for banking system regulation, which represents upgraded capital requirements, liquidity norms, and additional monitoring tools for banking supervision and regulation. These standards were first established in 2009 by the BCBS though some of the Committee’s proposals remain currently open for discussion. The resultant…show more content…
This leads to increase from 4% (Basel II) to 8% of the risk-weighted assets in requirements regarding the Tier 1 Capital (which includes only common shares and undistributed profit). The second important inclusion of Basel III relates to the size of balance sheets which banks should strive to reduce: “leverage ratio” puts a limit on a list of activities a bank can develop compared to its capital. The minimum capital adequacy ratio that is required to be maintained by a bank is 8% (without the capital conservation buffer), which must reach 10,5% of the total assets. The third basic element of Basel III relates to liquidity. To provide a bank for equilibrium between loans and deposits Basel III has developed specific regulation which initiates with risk assessment through the stress test. Basel III compels banks to have sufficient liquidity available during a period of 30 days of “stressed” conditions. Under these circumstances only half serves to reimburse the bank and the bank is expected to inject the other 50% in the economy by granting new loans. Thus, loans with a maturity of 50% leave the bank once more. For deposits, Basel III states that the first group, individuals, and SMEs, leave the bank at the rate of 5% to 10% during the stress test. While for bank deposits, it is 100%. For corporates clients
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