Basel III

New Capital Regulation - Basel III

Capital Regulation - Basel III

Difference between Basel II and Basel III

BASEL III is an international and global regulatory standard about a bank's capital adequacy, market liquidity risk, and stress testing. The terms are agreed by the members of the Committee made for Basel regulation on Banking Supervision in 2010-11. The Basel III Accord was developed as a response to the deficiency of Basel II regarding financial regulation. The deficiency was noted in the crises of late 2000's. Basel III emphasized on the capital requirements of bank and introduces new and fresh regulatory necessity on bank leverage and bank liquidity. An example of it can easily be noted from the fact that Basel III changed the way loan risks are calculated in Basel II Accord which some of the agencies think is the most contributing factor in the 2007-2008 credit bubble crises. Another deficiency noted in Basel II which further increased the need of Basel III accord was the fact that Basel II out source one of the important principal of financial risks management to other companies that are not subjected to supervision such as credit rating agencies.

Several official agencies supervise the ratings of credit worthiness of financial bundles, bonds, and some other financial instruments. This leads to AAA ratings of credit default swaps, mortgage-backed securities and other instruments that are proved to be tremendously bad credit risks in practice. A more formal and proper scenario analysis is implied and applied (Reinhart & Rogoff 2009).

As per OECD estimation the implementation and application of Basel III across the financial institutions will decline the annual GDP growth by 0.05 to 0.15%. The criticism was muted itself outside the banking industry. Bank directors need to know the liquidity conditions of the market for some of the major asset holdings, ...