Journal articles on the topic 'Basel III capital reforms'
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Yeoh, Peter. "Basel IV: International Bank Capital Regulation Solution or the Beginnings of a Solution?" Business Law Review 39, Issue 5 (October 1, 2018): 176–83. http://dx.doi.org/10.54648/bula2018029.
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SUMMARY The BIS claims that the Basel III reforms otherwise known as Basel IV released in December 2017 completes the global reform of the regulatory framework as directed by the G20. This article traces the Basel I to IV journey and assesses its potential implications with focus on the fundamental issue of bank capital requirements.
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Nguyen, Quang Thi Thieu. "Basel III: where should we go from here?" Journal of Financial Economic Policy 11, no. 4 (November 4, 2019): 457–69. http://dx.doi.org/10.1108/jfep-01-2019-0001.
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Purpose This paper aims to propose the directions for potential reforms for the capital regulation. The focus is on the simplicity and comparability of the regulation, in addition to its risk sensitivity. Design/methodology/approach The author reviews the development of the Basel standards and identify the existing issues. On this basis, the recommendations are suggested. Findings The paper found that the capital regulation has become so complexed that it undermines its own efficiency in promoting the safety and soundness of the banking system. In addition, the current framework prevents a comparison of capital ratios across countries and over time. This discourages the market participants to supervise the bank’s operations. Therefore, there are still a need for the capital regulation reform. Practical implications By making the regulation simpler while ensuring the credit sensitivity, the market participants can play the most of their role and support the regulators in supervising banks. Originality/value The directions for the revised framework would be useful for the Basel Committee and central bank governors in designing an effective mechanism to supervise and discipline banks.
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Laurens, François. "Basel III and prudent risk management in banking: Continuing the cycle of fixing past crises." Risk Governance and Control: Financial Markets and Institutions 2, no. 3 (2012): 17–22. http://dx.doi.org/10.22495/rgcv2i3art1.
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Financial crises have had a significant impact on bank regulation and supervision. Reforms are often focussed on correcting past failings. Following the 2007 financial crisis, Basel III reforms have been introduced with a view to promote a more resilient banking sector and to improve the banking sector’s ability to absorb shocks arising from financial distress. A review of the Basel III reforms and the literature on the link between capital adequacy regulations and bank stability indicates that these regulations are unlikely to prevent the failure of banks resulting in systemic crises
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Bashir, Adnan, Muhammad Waris Ali Khan, Mirza Rizwan Sajid, and Shahryar Sorooshian. "Basel accord capital regulations and financial risk management: Empirical evidence from Pakistan’s financial institutions." Accounting 9, no. 1 (2023): 1–8. http://dx.doi.org/10.5267/j.ac.2022.10.001.
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The Pakistani banking sector has shown tremendous growth in the last two decades and witnessed strategic reforms including the implementation of Basel regulations. The objective of this study is to investigate the effect of Basel capital regulations on the various proxies of the financial performance of the Pakistani commercial banks. This study uses three different proxies to assess the effectiveness of the Basel capital regulations on the financial performance of Pakistani commercial banks from 2006 to 2018 and quantifies the effect of different Basel accords on the banking sector of Pakistan using the dynamic panel data estimation technique. In addition, the effect of the Global Financial Crisis (2008) on the financial performance of Pakistani banks has also been evaluated. The results indicate that Basel II and Basel III capital regulations have affected the banks’ profitability differently. Capital regulations of Basel II have increased the performance while capital requirements of Basel III have not affected the financial performance of Pakistani banks, pointing towards the ineffectiveness of Basel III capital regulations. Besides, there has been no change observed in the financial performance of Pakistani banks during the Global Financial Crisis (2008). Overall, the results of the Generalized Method of Moments (GMM) technique show that Basel capital regulations enhance the financial performance of the Pakistani banking sector.
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Milojević, Nenad, and Srđan Redžepagić. "Expected effects of the revised exposure to banks Basel credit risk weighted assets standard." Strategic Management 26, no. 3 (2021): 49–60. http://dx.doi.org/10.5937/straman2103049m.
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In 2017 Basel Committee on Banking Supervision (BCBS) published additional Basel III reforms for the calculation of the risk-weighted assets (RWA) as part of the capital adequacy calculation. The 2017 reforms should resolve shortcomings in the capital adequacy calculation from the pre-crisis period. Revised standardised approach for the credit risk should be valid as of January 2023. The new reforms are bringing numerous improvements particularly interesting for the bank strategic management. One of the especially important improvements of the 2017 Basel III RWA reforms is the new treatment of the exposures to banks. For the treatment of externally unrated exposure to banks, financial institutions can use Standardised Credit Risk Assessment Approach (SCRA). This topic is the most interesting and important for the banking sectors structured mostly with the externally unrated banks. This is more characteristic of the developing, transition economies than the developed economies. However, SCRA will also be very important for the developed economies' banking sectors and banks whose portfolios are dominated by externally rated bank exposures, but in the same time they have significant amount of the exposure to banks without external rating. This paper's focus is related to the expected effects of the implementation of SCRA on the unrated banks' exposure. The aim of the paper is to define those effects. The paper is analysing how worldwide implementation of SCRA will establish a more detailed RWA approach with enhanced risk sensitivity. The research has shown that externally unrated banks with strong and stable capital adequacy and other related parameters can have positive expectations from the implementation of SCRA.
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Conrad, Christian A. "Weaknesses of Financial Market Regulation." Applied Economics and Finance 5, no. 2 (January 4, 2018): 32. http://dx.doi.org/10.11114/aef.v5i2.2914.
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In this paper we examine the extent newer developments affect the economic processes of the market and put financial markets at risk. We also analyze if the financial market regulations are sufficient to limit the systemic risk they cause. The biggest Shortcoming of the recent reforms to the stabilization of the financial system, such as Basel III and the American Dodd Frank Act, is that they increase the capital requirements rather than the causes of the increased risk. It would generally be better to forbid risky and complex financial products than to further increase regulation complexity and the capital requirements as in Basel III and the American Dodd Frank Act.
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Prefontaine, Jacques. "Implications Of Basel III For Capital, Liquidity, Profitability, And Solvency Of Global Systematically Important Banks." Journal of Applied Business Research (JABR) 29, no. 1 (December 27, 2012): 157. http://dx.doi.org/10.19030/jabr.v29i1.7563.
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The objective of this paper is to study the profitability and solvency implications of the proposed Basel III capital and liquidity requirements in the global banking context. The intent is to improve our understanding on how the Basel III capital and liquidity requirements impact upon the functioning of global systematically important banks (GSIBs), and how this knowledge could prove to be useful in answering questions of policy relevance like financial stability in economics. A longer-term perspective is taken in order to link capital and liquidity requirements with the notion of systemic risk within the evolution of the international financial and monetary system. Of special interest is the interaction between macroeconomic policy - including monetary, exchange rate and combined micro-macro-prudential policy within the setting of present-day Basel III regulatory and supervisory reforms. More specifically, the paper addresses two related issues: first, it studies and presents several financial indicators that GSIBs disclose; second, it examines how these same indicators could be related to GSIBs profitability and solvency.
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Abdel-Baki, Monal A. "The Impact of Basel III on Emerging Economies." Global Economy Journal 12, no. 2 (April 25, 2012): 1850256. http://dx.doi.org/10.1515/1524-5861.1798.
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This research constructs a two-stage model to gauge the impact of Basel III on GDP growth rates in 47 emerging market economies (EMEs). The first stage detects a strong relationship between compliance with Basel III capital, liquidity and leverage ratios on the one hand and credit performance on the other hand. The second stage uses multiple regression analysis to estimate the direct and the indirect transmission effects. The results reveal that implementing Basel III would hamper growth by more than 3 percentage points, and that the recovery period from the shock requires 3 years and 3 quarters. Advanced EMEs are the most adversely impacted in comparison to secondary and frontier emerging markets. The paper concludes by proposing a set of recommendations and reforms at various levels: the Basle Committee for Banking Supervision, domestic regulators, national and regional trade unions of banks, and individual banking institutions.
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Hossain, Sk Alamgir, and K. M. Anwarul Islam. "Impact of Basel II & III Implementation to Mitigate Bank Risk: A Study on Al-Arafah Islami Bank Limited." Indian Journal of Finance and Banking 1, no. 2 (November 23, 2017): 42–51. http://dx.doi.org/10.46281/ijfb.v1i2.88.
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This study has examined the implementation process, effects, outcomes, of Basel II & reforms of Basel III within the Al-Arafah Islami Bank Limited. The purpose of Basel II is to create regulation about how many capital banks need to put away to guard against the financial and operational risk. Basel III newly introduced accord provides stricter approach toward managing risk with capital in order to strengthen capital & liquidity structure of international banking system. The purpose & aim of this study is to analyze capital adequacy framework whether it is complied with the regulatory supervisions under the prescription of Bangladesh bank as well as its capability to absorb shocks arising from financial and economic stress. Published disclosures & financial statements of last five years are used to collect data. OLS regression model is used to find out the relationship between profitability and capital adequacy requirement in terms of relevant influencing variables (e.g. asset turnover, size of the firm, capital adequacy ratios).capital adequacy ratio of this bank is higher than minimum standard level. The average capital adequacy ratio (CAR) is about 13.78%. The result of regression analysis is statistically significant and there is a positive relationship between capital and return on asset (ROA).If the capital adequacy requirement is increased the return on asset (ROA) will be increased. Islamic Banking sector has some uniqueness compared to the conventional Banking sector. Products are linked with real economic activities that are why financial crisis of 2008 did not create any extreme pressure on this sector.
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Cummings, James R., and Yilian Guo. "Do the Basel III capital reforms reduce the implicit subsidy of systemically important banks? Australian evidence." Pacific-Basin Finance Journal 59 (February 2020): 101247. http://dx.doi.org/10.1016/j.pacfin.2019.101247.
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Tutino, Franco Luciano, Giuliana Birindelli, and Paola Ferretti. "Bank capital and Basel 3 impacts on Italian banks." Corporate Ownership and Control 10, no. 1 (2012): 75–87. http://dx.doi.org/10.22495/cocv10i1art7.
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The issues raised by Basel III, with specific reference to the introduction of more stringent capital requirements, are numerous and touch upon different aspects, such as cost and profitability-related problems and the repercussions concerning strategies implemented by banks. Our aim is to clarify the impact on Italian banks. We will first present some general considerations addressing the main implications for bank management, before illustrating the results of a survey aimed at detecting possible fears and doubts, on the part of banks, with reference to the extent to which some of the capitalisation proposals included in the reform can actually be pursued
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Dzhagityan, Eduard, Anastasiya Podrugina, and Sofya Streltsova. "U. S. Investment Banks in the Context of the Post-Crisis International Banking Regulation Reform." Moscow University Economics Bulletin 2020, no. 1 (February 27, 2020): 21–40. http://dx.doi.org/10.38050/01300105202012.
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The article looks into the reasons underlying the outspread of the full-scale mechanism of banking regulation over U. S. investment banks. We analyze the effect of the Basel III standards on stress-resilience of investment banks and examine the role of U. S. investment banks in ensuring financial stability. Based on regression analysis we found that minimum capital adequacy standards of Basel III do not have negative effect on ROE of the U. S. investment banks that are G-SIB category-designate; however, additional capital requirements (Higher Loss Absorbency (HLA) surcharge) that depend on G-SIB’s systemic significance according to their bucket as per Financial Stability Board classification do have significant and negative effect on ROE in the post crisis period. Besides, leverage requirements that also depend on G-SIB’s systemic significance have a statistically significant effect on ROE.
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Birn, Martin, Olivier de Bandt, Simon Firestone, Matías Gutiérrez Girault, Diana Hancock, Tord Krogh, Hitoshi Mio, et al. "The Costs and Benefits of Bank Capital—A Review of the Literature." Journal of Risk and Financial Management 13, no. 4 (April 16, 2020): 74. http://dx.doi.org/10.3390/jrfm13040074.
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In 2010, the Basel Committee on Banking Supervision published an assessment of the long-term economic impact (LEI) of stronger capital and liquidity requirements. This paper considers this assessment in light of estimates from later studies of the macroeconomic benefits and costs of higher capital requirements. Consistent with the Basel Committee’s original assessment, this paper finds that the net macroeconomic benefits of capital requirements are positive over a wide range of capital levels. Under certain assumptions, the literature finds that the net benefits of higher capital requirements may have been understated in the original committee assessment. Put differently, the range of estimates for the theoretically optimal level of capital requirements—where marginal benefits equal marginal costs—is likely either similar to, or higher than was originally estimated by the Basel Committee. The above conclusion is however subject to a number of important considerations. First, estimates of optimal capital are sensitive to a number of assumptions and design choices. For example, the literature differs in judgments made about the permanence of crisis effects as well as assumptions about the efficacy of post crisis reforms, such as liquidity regulations and bank resolution regimes, in reducing the probability and costs of future banking crisis. In some cases, these judgements can offset the upward tendency in the range of optimal capital. Second, differences in (net) benefit estimates can reflect different conditioning assumptions such as starting levels of capital or default thresholds (the capital ratio at which firms are assumed to fail) when estimating the impact of capital in reducing crisis probabilities. Finally, the estimates are based on capital ratios that are measured in different units. For example, some studies provide optimal capital estimates in risk-weighted ratios, others in leverage ratios. And, across the risk-weighted ratio estimates, the definition of capital and risk-weighted assets (RWAs) can also differ (e.g., tangible common equity (TCE) or Tier 1 or common equity tier 1 (CET1) capital; Basel II RWAs vs. Basel III measures of RWAs). A full standardisation of the different estimates across studies to allow for all of these considerations is not possible on the basis of the information available and lies beyond the scope of this paper. This paper also suggests a set of issues which warrant further monitoring and research. This includes the link between capital and the cost and probability of crises, accounting for the effects of liquidity regulations, resolution regimes and counter-cyclical capital buffers, and the impact of regulation on loan quantities.
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Afzal, Ayesha. "The Impact of Market Discipline on Banks’ Capital Adequacy: Evidence From an Emerging Economy." Lahore Journal of Business 4, no. 1 (September 1, 2015): 61–73. http://dx.doi.org/10.35536/ljb.2015.v4.i1.a4.
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This study presents empirical support for the role of market discipline in augmenting bank capital ratios in a competitive banking environment. Using a panel dataset on domestic commercial banks in Pakistan from 2009 to 2014, the study determines if the market penalized banks for any increase in their risk profile through a rise in the cost of raising funds. The results point to a significant relationship between capital adequacy and other risk factors, with the cost of deposits demonstrating how depositors align the required return to the perceived risk level of the bank. These findings have important implications for policymakers as market discipline could complement the role of regulators, which would eventually lower the cost of supervision. Moreover, the focus of international reforms as seen through the implementation of Basel III should continue to be on developing a more competitive and transparent banking system.
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Nechitailo, Vladimir, and Henry Penikas. "Agent-based modeling for benchmarking banking regulation regimes: Application for the CBDC." Model Assisted Statistics and Applications 16, no. 4 (December 20, 2021): 261–72. http://dx.doi.org/10.3233/mas-210540.
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COVID-19 pandemic challenges the sustainability of the modern financial system. International central bankers claim that banks are solid. They have accumulated significant capital buffers. Those buffers should be further more augmented by 2027 in line with Basel III reforms. However, disregarding such a consecutive rise in the banking capital adequacy requirements, the US financial authorities undertook an unprecedented step. First time in the country history they lowered the reserve requirement to zero at the end of March 2020. Friedrich von Hayek demonstrated the fragility of the modern fractional reserve banking systems. Together with Ludwig von Mises (von Mises, 1978) he was thus able to predict the Great Depression of 1929 and explain its mechanics much in advance. Thus, we wish to utilize the agent-based modeling technique to extend von Hayek’s rationale to the previously unstudied interaction of capital adequacy and reserve requirement regulation. We find that the full reserve requirement regime even without capital adequacy regulation provides more stable financial environment than the existing one. Rise in capital adequacy adds to modern banking sustainability, but it still preserves the system remarkably fragile compared to the full reserve requirement. We also prove that capital adequacy regulation is redundant when the latter environment is in place. We discuss our findings application to the potential Central Bank Digital Currencies regulation.
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Feridun, Mete, and Alper Özün. "Basel IV implementation: a review of the case of the European Union." Journal of Capital Markets Studies 4, no. 1 (July 13, 2020): 7–24. http://dx.doi.org/10.1108/jcms-04-2020-0006.
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PurposeIntroducing radical changes to the methodologies for the determination of capital requirements, the final stage of the Basel III standards, which is referred to as “Basel IV” by the industry, will be a significant challenge for the global banking sector. This article reviews the main components of the new framework, analyses its ongoing implementation in the European Union and discusses its potential impact on banks, putting forward policy recommendations.Design/methodology/approachThis article uses primary sources such as the publications by the Basel Committee for Banking Supervision and the European Commission. It also reviews the secondary sources, including both academic articles and analyses by various stakeholders. However, this article does not undertake any empirical analysis.FindingsThis article discusses that Basel IV will introduce strategic, operational and regulatory challenges for banks in scope. It also identifies a number of areas which are subject to further debate in the European Union such as the enhanced due diligence requirements under the new credit risk framework; governance, reporting and control rules under the operational risk framework; exemptions for certain derivative transactions under the credit valuation adjustment framework and the level of application of the capital floors within banking groups. This article concludes that the global implementation of the reforms by all jurisdictions and transposition into national banking laws concurrently with the European Union in line with the Basel Committee's implementation timeline is important from a financial stability standpoint.Originality/valueThe article presents an up-to-date and comprehensive review of the practical implications of Basel IV standards. It analyses the implementation of the standards in the case of the European Union, reviews the potential policy implications and presents recommendations for risk management practitioners.
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Riccetti, Luca, Alberto Russo, and Mauro Gallegati. "FINANCIAL REGULATION AND ENDOGENOUS MACROECONOMIC CRISES." Macroeconomic Dynamics 22, no. 4 (August 10, 2017): 896–930. http://dx.doi.org/10.1017/s1365100516000444.
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We explore the effects of banking regulation on financial stability and macroeconomic dynamics in an agent-based computational model. In particular, we study the minimum level of capital and the lending concentration towards a single counterpart. We show that an overly tight regulation is dangerous because it reduces credit availability. By contrast, overly loose constraints, associated with a high payout ratio, increase financial fragility that, in turn, damage the real economy. Simulation results support the introduction of regulatory rules aimed at assuring an adequate capitalization of banks, such as the Capital Conservation Buffer (Basel III reform).
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Kolovou, Evaggelia, Grigorios Gikas, and Kostantinos Kyritsis. "The Economic Crisis of 2008 and the Financial System Supervision: Towards an European Banking Union." Central European Review of Economics & Finance 24, no. 2 (April 30, 2018): 45–56. http://dx.doi.org/10.24136/ceref.2018.009.
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The significant repercussions of the recent crisis in the financial sector and the real economy have led to the development of policies aimed at strengthening the stability of the international banking system. Banking regulatory reforms (Basel III) improve micro-prudential supervision and involve macro-prudential supervision to avoid systemic risk. Capital requirements are tightening up and the quality of core capital is upgraded in order to provide greater coverage of losses and better risk management. In addition, a new framework for liquidity risk is introduced, as well as a complementary tool for limiting leverage. Recently, an agreement was reached in the EU to establish a Banking Union in the Eurozone, based on uniform regulation, supervision, bank clearing and deposit protection mechanisms. This framework includes a common banking capital for bank consolidation, which aims to reduce the impact on savers. This study aims to analyse the banking sector's activities and the constituent elements of the existing regulatory framework, particularly those involved in the causes of the financial crisis. It also aims to present the dimensions of the new regulatory framework for joint supervision leading to the European Banking Union and to analyse the pillars that form it, even though they are still in progress. The analysis will also build on the experiences from the recent crisis, in order to reach clear conclusions about the necessity and role of the Banking Union.
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Žuk-Butkuvienė, Aleksandra, Dalia Vaitulevičienė, and Julija Staroselskaja. "CAPITAL ADEQUACY (SOLVENCY) AND LIQUIDITY RISK MANAGEMENT: ANALYSIS, EVALUATION, AND POSSIBILITIES FOR IMPROVEMENT." Ekonomika 93, no. 2 (January 1, 2014): 59–76. http://dx.doi.org/10.15388/ekon.2014.2.3546.
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Abstract. The main purpose of the present research is to analyse the supervision, capital adequacy (solvency) and liquidity prudential norms, limits and requirements of commercial banks operating in Lithuania, as well as to assess the quality of capital adequacy and liquidity risk management impact on the banking industry.The paper consists of two main parts: the analysis of literature and legislation, and the research, its results, recommendations, and conclusions. The first part reviews the theoretical analysis of the level of banking supervision and capital adequacy, liquidity prudential standards value. The authors have examined the banks’ supervising authorities and the regulation of their activities. There were are presented prudential standards of capital adequacy and liquidity for banks operating in Lithuania, their values’change after the Basel III reforms, and the scientific opinion about their development and tightening standards.The authors have carried out a study of the analysis of capital adequacy and liquidity prudential requirements, their evaluation and possibilities for improvement in banks operating in Lithuania. The analysis consists of the assessment of assets and liabilities of banks ensuring the prudential standards depending on the type of risk. The research revealed that the most important in banks’ capital adequacy and liquidity risk management is quality control and the harmonization of bank assets and liabilities. Besides, it is offered to review the calculation of requirements and procedures, to impose additional limits to ensure the basic standards and an efficient banking security.Key words: commercial banks, supervision, liquidity and capital adequacy (solvency) rates, qualitative and quantitative analysis, evaluation
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Mahmood, Haroon, Christopher Gan, and Cuong Nguyen. "Maturity transformation risk factors in Islamic banking." Managerial Finance 44, no. 6 (June 11, 2018): 787–808. http://dx.doi.org/10.1108/mf-07-2017-0259.
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Purpose Maturity transformation risk is one of the leading causes of the global financial crisis. While endorsing the new Basel III liquidity reforms, the Islamic Financial Services Board has suggested a modified NSFR ratio as a structural measure for the maturity transformation function of Islamic banks, allowing for their unique balance sheet structure. The purpose of this paper is to analyze various firm-specific and macroeconomic factors that may significantly affect the maturity transformation risk of these banks. Design/methodology/approach Using an annual data set of 55 full-fledged Islamic banks from 11 different countries over a period from 2006-2015, this study utilizes a two-step system generalized method of moments estimation technique on an unbalanced panel data. Findings The empirical results reveal bank size, capital, less-risky liquid assets, risky liquid assets, external funding dependence and market power as significant bank-specific factors in determining maturity transformation risk. However, the authors find no evidence for the effect of bank credit risk on maturity transformation risk in Islamic banking system. Originality/value This is the first study that focuses on the measurement of maturity transformation risk and its determinants in Islamic banks in a cross-country context, with regards to new liquidity regulatory requirements as proposed by Islamic Financial Services Board (IFSB) in conjunction with Basel III.
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Dzhagityan, E. "Basel III: In quest for criteria and scenarios of the banking regulation reform advancement." Voprosy Ekonomiki, no. 2 (February 20, 2016): 77–93. http://dx.doi.org/10.32609/0042-8736-2016-2-77-93.
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The article looks into the spillover effect of the sweeping overhaul of financial regulation, also known as Basel III, for credit institutions. We found that new standards of capital adequacy will inevitably put downward pressure on ROE that in turn will further diminish post-crisis recovery of the banking industry. Under these circumstances, resilience of systemically important banks could be maintained through cost optimization, repricing, and return to homogeneity of their operating models, while application of macroprudential regulation by embedding it into new regulatory paradigm would minimize the effect of risk multiplication at micro level. Based on the research we develop recommendations for financial regulatory reform in Russia and for shaping integrated banking regulation in the Eurasian Economic Union (EAEU).
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Barua, Ratna, Malabika Roy, and Ajitava Raychaudhuri. "Structure, Conduct and Performance Analysis of Indian Commercial Banks." South Asian Journal of Macroeconomics and Public Finance 5, no. 2 (December 2016): 157–85. http://dx.doi.org/10.1177/2277978716671042.
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The market structure, conducts and performance of the Indian banking sector have changed since the introduction of banking sector reforms. Slower economic growth, coupled with asset quality problems in recent years, has taken a toll on the overall health of the Indian banking sector. Higher statutory capital requirement under Basel III has posed another major challenge to the Indian banks. The purpose of the study is to examine the impact of structural changes and conduct of Indian commercial banks on their profitability in the paradigm of structure–conduct–performance (SCP) framework. Market concentration, bank-specific/macroeconomic variables have been considered as important determinants of the profitability. The regression results find a negative relationship between profitability and market concentration and reject SCP hypotheses. The study found that capitalization, credit risk, leverage and ownership structure are the most important determinants of the profitability of Indian banks. The study also found that financial crisis had no significant impact on the profitability of Indian banks. JEL Classification: C4, G21, G28, L19
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Ghosh, Saibal. "Capital structure, ownership and crisis: evidence from Middle East and North African banks." Accounting Research Journal 31, no. 2 (July 2, 2018): 284–300. http://dx.doi.org/10.1108/arj-09-2015-0121.
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Purpose Although understanding the capital structure of firms has been quite commonplace in the empirical literature, there is admittedly limited evidence with regard to the determinants of capital structure for banks. In this context, using data for the period 2000-2012, this paper aims to examine the factors affecting the capital structure of Middle East and North African (MENA) banks. Design/methodology/approach The data span the period 2000-2012 and comprise of over 100 banks from 12 MENA countries. Given the longitudinal nature of the data, the panel uses panel data techniques and controls for unobserved bank characteristics that might affect capital structure. Findings The findings indicate that the factors driving book leverage are similar to those influencing market leverage. These findings refute the conventional wisdom that bank capital structure is purely a response to the regulatory requirements, as otherwise, regulatory concerns would have driven a wedge between these two leverage measures. Second, the crisis appears to have exerted a perceptible impact on bank capital. Third, in terms of ownership, it appears that the crisis-support measures had a salutary effect on Islamic banks, in turn improving their growth opportunities. Research/limitations/implications This is the first study to examine the determinants of capital structure for MENA banks and how it evolved during the crisis. By using both book- and market-related measures of capital structure, the study is able to shed light whether regulatory concerns are a major driven of bank capital. As the recent financial crisis indicates, bank failures impose enormous social and economic costs, which are protracted and significant. Practical implications From a practical standpoint, the study seeks to inform the policy debate on the role of regulation in impacting bank capital, especially in the light of the envisaged Basel III reforms. In addition, the study suggests that classroom teaching on bank capital needs to be suitably refined to take on board country-specific requirements and, in addition, focus on how such behavior evolved during the crisis. Originality/value This is the first study to examine the determinants of capital structure for MENA banks and how it evolved during the crisis. By using both book- and market-related measures of capital structure, the study is able to shed light whether regulatory concerns are a major driven of bank capital. As the recent financial crisis indicates, bank failures impose enormous social and economic costs, which are protracted and significant.
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Penev, Slavica, and Matija Rojec. "The future of FDI in south eastern European countries: Messages from new EU member states." Ekonomski anali 59, no. 202 (2014): 43–67. http://dx.doi.org/10.2298/eka1402043p.
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This paper looks at the interlinking of inward FDI, EU accession, and transition-related structural reform processes, and identifies the largest lags of SEE-6 countries in EU accession and transition processes, whose removal would have a positive impact on inward FDI. The analysis is based on EBRD Transition Indicators, the World Bank Doing Business Index, and the World Bank Governance Index. We find an obvious correlation of inward FDI, transition, and EU accession processes of NMS-10 countries and claim that SEE-6 countries will broadly follow the same pattern: their relative position as FDI recipients will gradually improve along with the progress of EU accession and transition processes. The analysis identifies the following main gaps of the SEE-6 in these processes: (i) in terms of economic system development - enterprise restructuring and governance, and sectoral reforms in energy, infrastructure, capital markets, and private equity; (ii) in terms of the governance of economy and society at large - regulatory quality and rule of law; and (iii) in terms of the business environment - dealing with construction permits, enforcing contracts, and registering property. Progress in narrowing down these gaps would mean a step forward in EU accession and transition, and consequently an improvement of SEE-6 countries? positions as locations for inward FDI.
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Dzhagityan, E. "Financial Stability Board: Is Its Institutionalization a Reality?" World Economy and International Relations 59, no. 11 (2015): 78–90. http://dx.doi.org/10.20542/0131-2227-2015-59-11-78-90.
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The article deals with the evolution of the Financial Stability Board (FSB) into a full-scale and sound authority of international banking regulation. Founded in 1999 as the Financial Stability Forum, the FSB has become an international body in 2009 overseeing the international financial regulation reform, also known as Basel III. Nonetheless, FSB’s responsibilities and competence are still limited to the annual determination of global systemically important banks (G-SIBs) and the development of the reform strategies for G-20 consideration. FSB has already proved to be a credible coordinator of Basel III implementation. Its initiatives on effective resolution strategies and total loss absorbing capacity for G-SIBs not only notably contributed to the set of regulatory tools and techniques aimed at minimization of systemic risks and enhancement of stress resilience of the banking industry but also designed approaches to mitigate the threat of “too big to fail” banks for the national economy at large. However, new regulatory paradigm requires principally new metrics to measure macro- and micro-level risks. Yet synchronization of the regulatory reform at the national and supranational levels stands beyond the accepted scope of synergetic effect of the reform. This means that FSB’s organizational status makes it less capable to be in line with financial sector dynamics, its growing interconnectedness and complicating infrastructure, and rapidly changing economic environment. Under these circumstances regulatory transformation lacks mechanism that would overcome fallouts of regulatory arbitrage as well as risks of shadow banking. Reform inconsistency may spur perilous effect of regulatory “glocalization” in that national regulatory regimes may stop abiding by most of the Basel III principles and standards, which may ultimately ruin sense, logic, and continuum of the reform. Shortage of factors that calibrate consistency and continuity of regulatory reform diminishes FSB’s involvement into it. FSB’s efforts in promoting basics of reform synchronization between national and international realms are weakened by fragmentation of the financial markets as well as by different adaptive abilities of financial institutions to the new regulatory order. On the other side, single-principles-centered quantitative and qualitative platforms of banking regulation are among the imminent traits of the global financial sector. The mentioned conflicts put on the agenda the inevitability of a higher international status of the FSB as a powerhouse of a single regulatory concept aiming at global financial stability. Driven by that mission FSB is urged to become an independent international institute to administer closer collaboration among national regulators as a regulatory information hub. This will decisively complement its kit of existing instruments in attaining more balanced reform implementation and will ensure synergetic effect when applying regulatory actions into risk identification and risk management as well as resolution and recovery of G-SIBs. Acknowledgements. The research was supported by a grant of the RFH, project № 15-02-00669/15 “Development of the conceptual framework for cross-border capital flow amid escalation of geopolitical risks for the Russian Federation”.
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Mateev, Miroslav, Syed Moudud-Ul-Huq, and Ahmad Sahyouni. "Regulation, banking competition and risk-taking behavior in the MENA region: policy implications for Islamic banks." Journal of Islamic Accounting and Business Research 13, no. 2 (December 14, 2021): 297–337. http://dx.doi.org/10.1108/jiabr-01-2021-0009.
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Purpose This paper aims to investigate the impact of regulation and market competition on the risk-taking Behaviour of financial institutions in the Middle East and North Africa (MENA) region. Design/methodology/approach The empirical framework is based on panel fixed effects/random effects specification. For robustness purpose, this study also uses the generalized method of moments estimation technique. This study tests the hypothesis that regulatory capital requirements have a significant effect on financial stability of Islamic and conventional banks (CBs) in the MENA region. This study also investigates the moderating effect of market power and concentration on the relationship between capital regulation and bank risk. Findings The estimation results support the view that capital adequacy ratio (CAR) has no significant impact on credit risk of Islamic banks (IBs), whereas market competition does play a significant role in shaping the risk behavior of these institutions. This study report opposite results for CBs – an increase in the minimum capital requirements is followed by an increase in a bank’s risk level, which has a negative impact on their financial stability. Furthermore, the results support the notion of a non-linear relationship between banking concentration and bank risk. The findings inform the regulatory authorities concerned with improving the financial stability of banking sector in the MENA region to set their policy differently depending on the level of concentration in the banking market. Research limitations/implications This study contributes to the literature on the effectiveness of regulatory reforms (in this case, capital requirements) and market competition for bank performance and risk-taking. In regard to IBs, capital requirements are less effective in requiring IBs to adjust their risk level according to the Basel III methodology. This study finds that IBs’ risk behavior is strongly associated with market competition, and therefore, the interest rates. Moreover, banks operating in markets with high banking concentration (but not necessarily, low competition), will decrease their credit risk level in response to an increase in the minimum capital requirements. As a result, these banks will be more stable compared to their conventional peers. Thus, regulators and policymakers in the MENA region should restrict the risk-taking behavior of IBs through stringent capital requirements and more intense banking supervision. Practical implications The practical implications of these findings are that the regulatory authorities concerned with improving banking sector stability in the MENA region should proceed differently, depending on the level of banking market concentration. The findings inform regulators and policymakers to set capital requirements at levels that would restrict banks from taking more risk to increase their returns. They are also important for bank managers who should avoid risky strategies in response to increased regulatory pressure (e.g. increase in the minimum required capital level of 8%), as they may lead to an increase in the level of non-performing loans, and therefore, a greater probability of bank default. A future extension of this study will focus on testing the effect of bank risk-taking and market competition on the capitalization levels of banks in the MENA countries. More specifically, this study will investigates if banks raise their capitalization levels during the COVID-19 pandemic. Originality/value The analysis of previous research indicates that there is no unambiguous answer to the question of whether IBs perform differently than CBs under different competitive conditions. To fill this gap, this study examines the influence of capital regulation and market competition (both individually and interactively) on bank risk-taking behavior using a large sample of banking institutions in 18 MENA countries over 14 years (2005–2018). For the first time in this line of research, this study shows that the level of market power is positively associated with the level of a bank’ insolvency risk. In others words, IBs operating in highly competitive markets are more inclined to take a higher risk than their conventional peers. Regarding the IBs credit risk behavior, this study finds that market power has a limited impact on the relationship between CAR and risk level. This means that IBs are still applying in their operations the theoretical models based on the prohibition of interest.
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Martino, Giuseppe Di, Grazia Dicuonzo, Graziana Galeone, and Vittorio Dell'Atti. "Does the New European Banking Regulation discourage Earnings Management?" International Business Research 10, no. 10 (September 7, 2017): 45. http://dx.doi.org/10.5539/ibr.v10n10p45.
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In the recent past, the financial crisis has shown important lacks in the EU regulation relating to the banking sector, making the introduction of a unified regulatory framework necessary. Since June 2009 the European Council has recommended a “Single Rulebook”, that is a unique and harmonizing discipline applicable to all financial institutions in the Single Market, become effective on January 2014. This prudential discipline requires much more minimum capital, liquidity and information transparency and it defines format and minimum standards of contents.The aim of this research is to investigate the relation between the new mandatory disclosure and earnings management policies in banking sector realized through Loan Loss Provisions (LLP), the component of income statement mainly subject to manipulations, especially in form of earnings smoothing. Because the new integrated regulatory framework requires a more transparent disclosure, we expected that accruals manipulation (basically LLP) could be discouraged. The empirical analysis is based on a sample of 116 listed European banks over the period prior (2011-2012-2013) and after (2014-2015-2016) the effective date of the Single Rulebook. The evidence confirm our hypothesis suggesting that this banking reform discourages earnings manipulation and improves earnings quality, making financial reporting more useful for investors. The results are important to the regulatory institutions (such as European Union and European Central Bank) supporting more stringent discipline introduced by Basel III.
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McCahery, Joseph A. "Innovative Business Forms for High Tech Start-ups in Europe." European Business Law Review 13, Issue 3 (June 1, 2002): 243–66. http://dx.doi.org/10.54648/5086956.
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This paper will examine the theoretical arguments for and against the importance of new business forms for the growth of start-ups. Part I briefly reviews the recent history of business organization law innovation within Europe. Our review of extant European business forms reveals that absence of new business entities (and structural reforms) may be due to status quo bias and other network effects. Turning to the importance of new business forms for the growth of start-ups, Part II addresses the question which organizational and legal structures are favourable for the growth of start-ups. It is suggested that the introduction of an efficient organizational form for start-ups is crucial to further stimulate the development of a successful venture capital market in Europe. In Part III we give consideration to the possibility of developing new business forms, based on US mechanisms, which could lead to an increase in the level of start-ups. The prospect for the emergence of new business forms depends in part on the removal of legal and non-legal barriers. The next section evaluates whether we can project a pattern of regulatory competition in the business organization context that could stimulate lawmakers to innovate by introducing new legal entities.
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Swamy, Vighneswara. "Basel III capital regulations and bank profitability." Review of Financial Economics 36, no. 4 (April 25, 2018): 307–20. http://dx.doi.org/10.1002/rfe.1023.
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Ozili, Peterson K. "Basel III in Africa: making it work." African Journal of Economic and Management Studies 10, no. 4 (December 2, 2019): 401–7. http://dx.doi.org/10.1108/ajems-05-2019-0206.
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Purpose Basel III is a framework to protect the global banking system. The purpose of this paper is to provide a policy discussion on Basel III in Africa. Design/methodology/approach The significance of Basel III is discussed, and some ideas to consider when implementing Basel III to make it work in Africa, are provided. Findings Under Basel III, the African banking industry should expect better capital quality, higher capital levels, minimum liquidity requirement for banks, reduced systemic risk and differences in Basel III transitional arrangements. This paper also emphasizes that there should be enough time for the transition to Basel III in Africa; a combination of micro and macro-prudential regulations is needed; and the need to repair the balance sheets of banks, in preparation for Basel III. Originality/value The discussions in this paper will benefit policymakers, academics and other stakeholders interested in financial regulation in Africa such as the World bank and the International Monetary Fund.
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Ding Xiao Ling, Razali Haron, and Aznan Hasan. "BASEL III CAPITAL REGULATION FRAMEWORK AND ISLAMIC BANK’S RISK." IIUM Law Journal 30, S2 (November 12, 2022): 93–128. http://dx.doi.org/10.31436/iiumlj.v30is2.765.
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Basel III modified the requirements for approving new regulatory capital norms to improve capital quality. Because bank liquidity problems were a defining feature of the crisis, Basel III established new requirement ratios while also tightened capital requirements. The Liquidity Coverage Ratio (LCR) was developed to safeguard banks' short-term liquidity, whereas the Net Stable Funding Ratio (NSFR) is being proposed to strengthen banks' medium- and long-term liquidity shock resilience. As a necessary consequence, Islamic financial institutions (IFIs) must issue instruments that satisfy both Basel III and Shari’ah requirements. This study aims to identify the regulatory requirements for Basel III and the Islamic Financial Services Board (IFSB)'s new capital and liquidity rules, as well as the implications for Islamic banks (IB). This study employs a mixed research methodologies approach which includes document analysis of primary and secondary sources, as well as the relevant regulations published by BCBS and IFSB. This study relies on the identification of Standards for each criterion before conducting a systematic review of the 23 publications that meet the study's requirements published between 2013 and 2022. There is a scarcity of Shari’ah-compliant research on capital buffers, tier 1 capital, and common equity tier 1 capital, according to certain findings. Furthermore, the empirical literature suggests that Basel III has a significant impact on the financial risk of the IB sector in the samples collected. However, there is still a significant gap in studies investigating the influence of Basel III/IFSB capital and liquidity regulations on Islamic bank risk, or more precisely, supportive data from empirical investigations. The wealth of research will provide new insights to standard-setters (BCBS and IFSB), regulators, researchers, and academicians.
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Mpundu, M., M. A. Petersen, J. Mukuddem-Petersen, and F. Gideon. "Basel III and Asset Securitization." Discrete Dynamics in Nature and Society 2013 (2013): 1–19. http://dx.doi.org/10.1155/2013/439305.
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Asset securitization via special purpose entities involves the process of transforming assets into securities that are issued to investors. These investors hold the rights to payments supported by the cash flows from an asset pool held by the said entity. In this paper, we discuss the mechanism by which low- and high-quality entities securitize low- and high-quality assets, respectively, into collateralized debt obligations. During the 2007–2009 financial crisis, asset securitization was seriously inhibited. In response to this, for instance, new Basel III capital and liquidity regulations were introduced. Here, we find that we can explicitly determine the transaction costs related to low-quality asset securitization. Also, in the case of dynamic and static multipliers, the effects of unexpected negative shocks such as rating downgrades on asset price and input, debt obligation price and output, and profit will be quantified. In this case, we note that Basel III has been designed to provide countercyclical capital buffers to negate procyclicality. Moreover, we will develop an illustrative example of low-quality asset securitization for subprime mortgages. Furthermore, numerical examples to illustrate the key results will be provided. In addition, connections between Basel III and asset securitization will be highlighted.
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Isépy, Tamás. "Basel III: Rethinking liquidity and leverage." Society and Economy 37, no. 1 (March 1, 2015): 89–107. http://dx.doi.org/10.1556/socec.37.2015.1.5.
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The paper focuses on important topics of the new banking regulation Basel III: leverage and liquidity. Using linear regression, I analysed the long term liquidity, leverage ratios and profitability of banks in the 12 emerging market new EU members and developed, old member countries between 2008 and 2010. I point out that in the EU12 there was a negative relationship between profits and interbank market dependence in 2010, while positive correlation existed between profits and funding base stability ratio. In the case of EU15 there was a negative correlation between solvency and profitability in 2008, while the relationship is positive between capital quality (more tier 1 capital) and profitability. Furthermore, I have tested the Myers-Majluf theory with monthly aggregated equity issue and the Dow Jones financial institutions index changes relating to the eurozone between 1990 and 2011. According to this theory, equity issue leads to lower equity prices. I point out that on an aggregated level (the eurozone) the theory cannot be proved. The Myers-Majluf theory is particularly important in the process of banking recapitalisation, since it dictates slower banking capitalisation. From the perspective of a macroprudential policy, capital increase would be more beneficial than asset decrease.
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Van Vuuren, Gary Wayne. "Basel III countercyclical capital rules: implications for South Africa." South African Journal of Economic and Management Sciences 15, no. 3 (August 22, 2012): 309–24. http://dx.doi.org/10.4102/sajems.v15i3.235.
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The financial crisis has been blamed on many entities, institutions and individuals as well as the Basel II accord which had just begun to be implemented globally when the crisis erupted. The criticisms resulted in the construction of Basel III, a series of measures designed to augment and repair (but not replace) the Basel II accord. One of these adjuncts addresses the problem of economic procyclicality and suggests ways to mitigate it through capital charge increases when economies overheat and capital charge reduction in economic contractions. The consequences of this proposed measure's introduction for South African banks is explored.
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Swamy, Vighneswara. "Estimating the Basel III Capital Requirement for Indian Banks." Applied Economics Quarterly: Volume 64, Issue 3 64, no. 3 (July 1, 2018): 253–77. http://dx.doi.org/10.3790/aeq.64.3.253.
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Abstract The study estimates the Basel-III capital requirement for Indian banks employing the methodology incorporating the reported tier-1, tier-2 capital, total capital and risk-weighted assets (RWAs) sourced from the Basel disclosures made by the banks on their websites. In order to understand the strategy and the response of different bank groups based on their ownership styles, this study, groups the banks into scheduled commercial banks, public sector banks group, and private banks and considers the data for the period 2002 – 2011. The results suggest that with an assumed growth of RWAs at 10%, banks in India would require additional minimum tier-1 capital of INR 2.51 trillion. With an assumed RWAs growth at 12% and 15%, the requirement would be in the order of INR 3.36 trillion and INR 4.74 trillion respectively. JEL classifications: E44, E61, G2, G21, G28 Keywords: Basel III, capital and liquidity, commercial banks, capital, countercyclical capital buffers, financial (in)stability
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SOZAEVA, F. Kh. "EVALUATION OF THE EFFECTIVENESS OF BASEL III REFORMS UNDER COVID-19." EKONOMIKA I UPRAVLENIE: PROBLEMY, RESHENIYA 2, no. 5 (2021): 21–26. http://dx.doi.org/10.36871/ek.up.p.r.2021.05.02.004.
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The paper presents an assessment of the effectiveness of the Basel III reforms in the context of COVID-19. The paper analyzes the Post-Crisis Reform Assessment Program (2008–2009) and the two-year work program of the Basel Committee for 2021–2022, which sets out the strategic priorities of its activities in the field of banking policy, supervision and implementation. The conclusion is made about the positive impact of international standards on the security and resilience to the crisis of both individual banking systems and the global banking system.
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Klein, Philipp. "Basel III: Finalising post-crisis reforms – Auswirkungen auf die Kreditvergabe österreichischer Genossenschaftsbanken." E-conom 7, no. 1 (2018): 87–96. http://dx.doi.org/10.17836/ec.2018.1.087.
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Im Dezember 2017 wurde eine Überarbeitung der bis dato geltenden BASEL III Richtlinien mit dem Titel „Basel III: Finalising post-crisis reforms” veröffentlicht, welche wesentliche Änderungen für die österreichischen Genossenschaftsbanken mit sich bringen. Dabei liegt der Fokus dieses Artikles speziell auf die Veränderung im Kreditrisiko Standardansatz für die Bemessung des Kreditrisikos. Anhand einer Simulation sollen mögliche Auswirkungen auf die Eigenmittelquote dargestellt und Handlungsmaßnahmen abgeleitet werden.
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Lajqi, Hysen. "BASEL III LIQUIDITY RISK AND KOSOVO BANKING SYSTEM." Knowledge International Journal 34, no. 5 (October 4, 2019): 1329–35. http://dx.doi.org/10.35120/kij34051329l.
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The financial crisis 2007-2009 prompted the Basel Committee on Banking Supervision (BCBS) to intensify its efforts to strengthen the principles and standards for capital, as well as for the measurement and management of liquidity risk. Risk management is very important in the financial system, especially in banks. Among various risks Banks face is a liquidity risk it’s managing enables Banks to fulfil their obligationsBasel III consists of set of measures internally agreed. The implementation of Basel III will considerably increase the quality of banks' capital and significantly raise the required level of their capital. In addition, it will provide a "macro prudential overlay" to better deal with systemic risk.Like all Basel Committee standards, Basel III standards are minimum requirements which apply to internationally active banks. Members are committed to implementing and applying standards in their jurisdictions within the time frame established by the Committee.To ensure that banks have sufficient liquidity to survive potential liquidity shocks, as happened few years ago, the Basel Committee has issued two new globally revised minimum standards under the Basel III rules for the first time in the banking history: LCR – Liquidity Coverage Ratio and NSFR – Net Stable Funding Ratio that contain new requirements for bank capital, as well as standardized rules in the liquidity area.Banks need to fully comply with LCR and NSFR rules by January 1, 2019, according to the Capital Requirements Directive & Capital Requirements Regulation (CRD IV & CRR) rules.Basel III rules, in the European Union attain their applicable judicial form through REGULATION (EU) No 575/2013. The regulatory package is due to enter into force on January 1st, 2014, but some provisions will be implemented gradually between 2014 and 2019 and will fully come into force on January 1st, 2019. But these rules are likely to undergo some revisions due to a proposal by European Union (EU), so implementation horizon could go being beyond 2019.Performance of the Kosovo banking sector continued to be positive, thus contributing in maintaining the financial and economic stability of the country. Kosovo’s financial system continues to be characterized with sustainable increase in all its constituent sectors. The banking sector in Kosovo as most successful story is developed by many international institutions, characterized by a large presence of foreign capital, where 89. 2% of all assets are managed by foreign banks and development is based on international standards.Banking sector continued to have good liquidity position, with the main liquidity indicators standing above the minimal level as a required by the regulation.The implementation of Basel III rules in Kosovo related to liquidity depends on the local regulator and Basel III standards.
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Jain, Aastha. "Impact of BASEL III on India." Journal of Business Management and Information Systems 4, no. 1 (June 30, 2017): 23–28. http://dx.doi.org/10.48001/jbmis.2017.0401003.
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The Basel Committee on Banking Supervision (BCBS) set the first of capital accords in 1988, called the Basel I. Due to the dynamic changes in the world of financial system Basel I gave way to Basel II. Basel II plagued with the problem of pro-cyclicality paved the way for Basel III. India adopted Basel III norms in 2012. The present paper studies the impact of Basel III on India. In the short run, it will lead to a reduction in profitability of banks, curtailed credit to the economy and it is accused of being a needless burden on the Indian banks. But in the longer run, it will keep India integrated with the rest of the world. It will make the Indian financial system stronger, more stable and sound. It boils down to a trade-off between short-term costs and long run growth benefits.
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Yu, Peiyi, Jessica Hong Yang, and Nada Kakabadse. "Developing “best practices” for bankers’ pay in line with Basel III." Risk Governance and Control: Financial Markets and Institutions 1, no. 3 (2011): 7–16. http://dx.doi.org/10.22495/rgcv1i3art1.
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This paper proposes hybrid capital securities as a significant part of senior bank executive incentive compensation in light of Basel III, a new global regulatory standard on bank capital adequacy and liquidity agreed by the members of the Basel Committee on Banking Supervision. The committee developed Basel III in a response to the deficiencies in financial regulation brought about by the global financial crisis. Basel III strengthens bank capital requirements and introduces new regulatory requirements on bank liquidity and bank leverage. The hybrid bank capital securities we propose for bank executives’ compensation are preferred shares and subordinated debt that the June 2004 Basel II regulatory framework recognised as other admissible forms of capital. The past two decades have witnessed dramatic increase in performance-related pay in the banking industry. Stakeholders such as shareholders, debtholders and regulators criticise traditional cash and equity-based compensation for encouraging bank executives’ excessive risk taking and short-termism, which has resulted in the failure of risk management in high profile banks during the global financial crisis. Paying compensation in the form of hybrid bank capital securities may align the interests of executives with those of stakeholders and help banks regain their reputation for prudence after years of aggressive risk-taking. Additionally, banks are desperately seeking to raise capital in order to bolster balance sheets damaged by the ongoing credit crisis. Tapping their own senior employees with large incentive compensation packages may be a viable additional source of capital that is politically acceptable in times of large-scale bailouts of the financial sector and economically wise as it aligns the interests of the executives with the need for a stable financial system.
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Oyetade, Damilola, Adefemi A. Obalade, and Paul-Francois Muzindutsi. "Basel capital requirements, portfolio shift and bank lending in Africa." ACRN Journal of Finance and Risk Perspectives 10, no. 1 (2021): 296–319. http://dx.doi.org/10.35944/jofrp.2021.10.1.014.
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Bank lending is a major source of income for a bank. Compliance with higher Basel capital requirements (CAR) portends serious implication for distribution of loan portfolio across different sectors. The objective of the study is to examine African banks’ responses to higher CAR in terms of portfolio shift. The study used descriptive statistics and ANOVA for panel data of African commercial banks that have implemented Basel II or III CAR for the period 2000 and 2018. Based on the results of our analysis, implementation of higher Basel CAR by African banks revealed four key findings. Firstly, our results suggest that higher Basel CAR particularly Basel III reduced total loans for South African banks. Secondly, African banks engage in portfolio shift with higher Basel levels. Thirdly, higher Basel capital increased banks' capital ratios in Africa, but some banks are still characterized by low equity. Fourthly, African banks reduce lending to high risk-weighted loans such as real estate and commercial loans except for South African banks which increased lending to commercial loans with higher Basel CAR. Lastly, this study proffers key insight into the lending behaviour of African banks with the implementation of higher Basel CAR.
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Bonnario, Mohammad. "DAMPAK IMPLEMENTASI BASEL III TERHADAP PERMODALAN PADA BANK DI INDONESIA (STUDI KASUS PADA PT BANK NEGARA INDONESIA (PERSERO) TBK)." Aliansi : Jurnal Manajemen dan Bisnis 13, no. 2 (September 5, 2020): 93–101. http://dx.doi.org/10.46975/aliansi.v13i2.27.
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The purpose of this study is to measure Bank's ability to implement the Basel III and what strategies should be undertaken by Bank to meet the regulations and support business growth in terms of capital. This study uses secondary data by using the implications of the basel III on Bank capital and capital adequacy rate with the object of PT. Bank Negara Indonesia (Persero) Tbk. Results There are significant changes of BNI KPMM prior to using basel II and after using Basel III ie changes in presentation templates, post changes and movements, changes in total capital and CAR, and additional buffers. However, it is able to contribute greatly to its business, among others, BNI is still able to cover the massive withdrawal from DPK due to capital and loan growth provide large space for credit expansion through good LLL, as well as capital ability to support profit growth supported from percentage of capital. But with so many risks that accompany it and the turbulent business climate and additional buffers, BNI still have to increase its capital again to be able to support the aggressive BNI business.
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Zweifel, Peter. "Solvency Regulation—An Assessment of Basel III for Banks and of Planned Solvency III for Insurers." Journal of Risk and Financial Management 14, no. 6 (June 8, 2021): 258. http://dx.doi.org/10.3390/jrfm14060258.
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Basel III, regulating the solvency of banks, is to be fully implemented by 2027 while Solvency III directed at insurers is being prepared. In view of past experience, it will be closely modelled after Basel III. This raises two questions. (i) Will Basel III and Solvency III be more successful than their predecessors? (ii) Is it appropriate to continue regulating the solvency of banks and insurers in the same way? The first question is motivated by an earlier finding that Basel I and II risked inducing more rather than less risk-taking by banks, which also holds for Solvency I and II w.r.t. insurers. The methodology applied was to determine the slope of an endogenous perceived efficiency frontier (EPEF) in (μ^,σ^)-space derived from banks’ and insurers’ optimal adjustment to exogenous changes, in expected returns dμ¯ and volatility dσ¯ on the capital market. Both Basel I and II and Solvency I and II neglected the impact of these developments on banks’ and insurers’ EPEF. This neglect had the effect of steepening the EPEF, causing senior management to opt for an increased rather than reduced value of σ^, and hence a lower solvency level. This issue is resolved by Basel III (Principle 5), which requires banks to take developments in the capital market into account in the formulation of their business strategies designed to ensure solvency. In combination with increased capital requirements, this is shown to result in a reduced slope of their EPEF and hence a reduced risk exposure. However, planned Solvency III may cause the EPEF of highly capitalized insurance companies to become steeper, with a concomitant decrease in their risk-taking and an increase of their solvency level. The second question, concerning the appropriateness of the uniformity of solvency regulation directed at banks and insurers, arises because the parameters determining the slope of the respective EPEF are found to crucially differ. Therefore, the uniformity of Basel and Solvency norms creates the risk of a mistaken regulatory focus.
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Boora, Krishan, and Kavita Jangra. "Preparedness level of Indian public sector banks for implementation of Basel III." Managerial Finance 45, no. 2 (February 11, 2019): 172–89. http://dx.doi.org/10.1108/mf-10-2017-0416.
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PurposeThe purpose of this paper is to explore the preparation level of Indian public sector banks for the implementation of Basel III. It is mandatory for public sector banks in India to make adequate preparations to comply with the Basel III international regulations.Design/methodology/approachThis study uses a modified questionnaire (Ernst & Young, 2013; AL-Tamimiet al., 2016) to examine the preparedness level of Indian public sector banks for implementing Basel III. Seven hypotheses are developed and tested.FindingsThe results show that Indian public sector banks are positively inclined toward Basel III, and the awareness level of Indian banks’ managers is adequate concerning Basel III. The banks have required resources for the proper implementation of Basel III, which is a prerequisite for its implementation. Banks know about the expected benefits that can be attained from implementing Basel III appropriately and banks are also aware of the high cost attached with Basel III. The capital adequacy ratio of public sector banks is above 11 percent, showing the banks’ readiness for Basel III.Practical implicationsThe public sector banks need to concentrate on revising the existing policies to sharpen their risk management practices. Moreover, improving the level of education on Basel III is still required and the results also support the importance of advanced technology and trained human resources at all level as a basic requirement for the implementation of Basel III. It can be achieved by the support of government, Reserve Bank of India (RBI) and other concerned agencies. The enforcement of Basel III will also create various challenges for Indian public sector banks, in terms of declining profitability, increasing capital requirements and nonperforming assets. That is why the impact of Basel III norms on Indian public sector banks cannot be undervalued.Originality/valueThe findings would assist the Indian public sector banks to know about their preparedness level for Basel III and what are the necessary actions to encourage Basel III implementation process. The present study would be important for regulators and decision makers in banks, as the main purpose of this study is to increase their awareness of Basel III norms. The result would also help the regulators regarding the corrective measures that should be taken by RBI in order to motivate the banks for enforcing Basel III.
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Goes, Karina Cyganczuk, Hsia Hua Sheng, and Rafael Felipe Schiozer. "Contingent Convertibles and their Impacts on the Optimization of the Capital Structure of Brazilian Banks Under Basel III." Revista Contabilidade & Finanças 27, no. 70 (March 1, 2016): 80–97. http://dx.doi.org/10.1590/1808-057x201501350.
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Banks around the world maintain excess regulatory capital, whether to minimize capitalization costs or to mitigate risks of financial difficulties. However, it was only after the financial crisis of 2008 that the quality of capital gained greater importance among international regulators, through the Third Basel Accord (Basel III), which suggested a capital structure formed of the new equity and debt hybrid instruments, that is, Contingent Convertibles (CoCos), which have the main goal of recapitalizing banks automatically when they show signs of financial difficulties. Using the continuous-time structural model developed by Koziol and Lawrenz (2012), with December 2013 as a reference, this paper analyzes the capital structure of the 10 biggest Brazilian banks in terms of total assets, comparing their current structures - with only subordinated debts - with the structure proposed in Basel III, composed solely of contingent convertibles, with a view to verifying the influence of CoCos in banks' risks and evaluating the effectiveness of this Basel III recommendation. Through the evidence obtained using the model mentioned, this paper's main contribution is in demonstrating that the use of CoCos would optimize the capital structure of banks under the restrictions of Basel III, considering these are effective. If not, the automatic recapitalization of these instruments could be used for shareholders' own benefit, thus increasing the likelihood of banks experiencing financial difficulties, which could cause a new financial crisis, like that which occurred in 2008.
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Mustafa, Madaa Munjid, Beebee Salma Sairally, and Marjan Muhammad. "Tier 2 Capital Instruments under Basel III: A Sharīʿah Viewpoint." Arab Law Quarterly 32, no. 3 (May 21, 2018): 205–41. http://dx.doi.org/10.1163/15730255-12320023.
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Abstract Basel III has redefined the criteria for regulatory capital instruments. Accordingly, Islamic banking institutions (IBIs) have to consider the issuance of instruments that would meet both the objectives of Basel III and Sharīʿah requirements. This research particularly aims to compare the regulatory requirements for issuing Tier-2 (T2) capital instruments as defined by Basel III, Bank Negara Malaysia (BNM) and IFSB-15. In this regard, the research examines the Sharīʿah issues related to subordination and conversion arising in exchange-based contracts (such as murābaḥah and iǧārah ṣukūk) and equity-based contracts (such as muḍārabah and wakālah ṣukūk). The study relies on library research to collect secondary data in the form of classical works of Islamic jurisprudence, analyses such work and links it with the present day regulatory requirements. The study finds that there are Sharīʿah concerns over the use of exchange-based contracts. However, the use of convertible muḍārabah and wakālah ṣukūk could be justified.
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Mohan, Timothy P., James J. Croke, Robert E. Lockner, and Peter C. Manbeck. "Basel III and Regulatory Capital and Liquidity Requirementsfor Securitizations." Journal of Structured Finance 17, no. 4 (January 31, 2012): 31–50. http://dx.doi.org/10.3905/jsf.2012.17.4.031.
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Jasrotia, Sahil Singh, Hari Govind Mishra, and Roop Lal Sharma. "Capital Adequacy Norms: Banks Compliance with BASEL-III Norms." International Journal of Electronic Banking 2, no. 1 (2020): 1. http://dx.doi.org/10.1504/ijebank.2020.10022944.
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Jasrotia, Sahil Singh, Hari Govind Mishra, and Roop Lal Sharma. "Capital adequacy norms: banks compliance with Basel-III norms." International Journal of Electronic Banking 2, no. 1 (2020): 16. http://dx.doi.org/10.1504/ijebank.2020.105414.
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Kleinknecht, Manuel, and Wing Lon Ng. "Minimizing Basel III Capital Requirements with Unconditional Coverage Constraint." Intelligent Systems in Accounting, Finance and Management 22, no. 4 (June 9, 2015): 263–81. http://dx.doi.org/10.1002/isaf.1370.
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