[Critical Review of Basel III: An Evaluation of New Banking Regulations]

By

ACKNOWLEDGEMENT

I would take this opportunity to thank my research supervisor, family and friends for their support and guidance without which this research would not have been possible

DECLARATION

I, [type your full first names and surname here], declare that the contents of this dissertation/thesis represent my own unaided work, and that the dissertation/thesis has not previously been submitted for academic examination towards any qualification. Furthermore, it represents my own opinions and not necessarily those of the University

Signed __________________ Date _________________

EXECUTIVE SUMMARY

According to conventional wisdom, the Basel II Accord - a set of capital adequacy standards for international banks drawn up by a committee of G-10 supervisors - is essential if we are to avoid another financial crisis. This paper argues that this conclusion is false: Basel II is not the solution to the crisis, but instead an underlying cause of it. I ask why Basel II's creators fell so short of their aim of improving the safety of the international banking system - why Basel II failed. Drawing on recent work on global regulatory capture, I present a theoretical framework which emphasises the importance of timing and sequencing in determining the outcome of rule-making in international finance. This framework helps to explain not only why Basel II failed, but also why the latest raft of proposals to regulate the international banking system - from the US Treasury's recent financial white paper to the latest round of G-20 talks in Pittsburgh - are likely to meet a similar fate.

ABSTRACT

What is the net contribution of the Basel Accords to the governance of global finance? The methodology used in this dissertation for assessing the costs and benefits of the Basel Process is the comparison of intended consequences and unintended consequences. Intended consequences are in the public interest and regarded as benefits. The unintended consequences are the side effects of those regulations which, it is assumed, no regulator would have deliberately selected or favored. They are the costs of the Basel Process. The major unintended consequence discussed in this dissertation is the accumulation of overleveraged and undercapitalized financial risks outside the banking supervisory framework of the Basel Accords. The conclusion of this dissertation is that while the Accords have contributed to the stability of the international banking system, they have also given market participants the incentive to evade regulations and create financial risks in the “shadow banking system.” The Basel Accords, in short, indirectly contributed to the Panic of 2008 and the Global Financial Crisis. Therefore, the costs of the Basel Process have outweighed its benefits.

TABLE OF CONTENTS

ACKNOWLEDGEMENTii

DECLARATIONiii

EXECUTIVE SUMMARYiv

ABSTRACTv

CHAPTER 1: INTRODUCTION8

Aims and Objectives9

Rationale10

Significance of the Study11

CHAPTER 3: PROBLEM STATEMENT AND PLAN OF ANALYSIS13

Problem Statement13

Plan of analysis15

Ethical Issues16

Models and Techniques16

Regulatory Motivations and Outcomes17

The Intellectual Puzzle: Stability versus Competitiveness18

Global Financial Stability and the Capital Adequacy of the Banking System19

Information Security and Information Technology Risk20

CHAPTER 4 : ANALYSIS AND FINDINGS23

Bank 1: Bank of America23

Capital Position of Bank23

Total Asset24

Total Profitability24

Total Non-performing loan25

Leverage25

Bank 2: HSBC PLC26

Capital position of bank26

Total ...