Basel Iii
Basel III is a global comprehensive collection of restructured regulatory standards on bank capital adequacy and liquidity. It was developed by the Basel Committee on Banking Supervision to strengthen the regulation, supervision and risk management of the banking sector (bis.org, 2010). It introduces new regulatory requirements on bank liquidity and bank leverage in response to the financial downturn caused by the Global Financial Crisis. Stefan Walter, Secretary General of the Basel Committee on banking supervision said in November 2010:
“There are many factors that led to the build up of the crisis. At the top of the list is excess liquidity, resulting in too much credit and weak underwriting standards. The vulnerability of the banking sector to this build up of risk in the system was primarily due to excess leverage, too little capital of insufficient quality, and inadequate liquidity buffers”. (pwc.lu, May 2011).
The reform’s objective is to improve both microprudential, bank-level, as well as macroprudential, system wide, regulation (actuaries.asn.au, 2011). Microprudential regulation will help increase the resilience of individual banking institutions to periods of financial and economic stress. Macroprudential regulation will help increase resilience of risks that can build up and intensify over time across the banking sector (bis.org, 2010). The greater the resilience at the individual bank level, the lower the risk of system wide shocks. Basel III aims to improve risk management and governance, strengthen banks’ transparency and disclosures, and improve the banking sector’s ability to absorb financial and economic shocks (bis.org 2010). Basel III will take effect gradually over the next eight years (theaustralian.com.au, December 2010). APRA proposed to adopt the minimum Basel III requirements for the definition and measurement of capital to ensure that its prudential capital framework is aligned with global standards. The key elements of the Basel III
“There are many factors that led to the build up of the crisis. At the top of the list is excess liquidity, resulting in too much credit and weak underwriting standards. The vulnerability of the banking sector to this build up of risk in the system was primarily due to excess leverage, too little capital of insufficient quality, and inadequate liquidity buffers”. (pwc.lu, May 2011).
The reform’s objective is to improve both microprudential, bank-level, as well as macroprudential, system wide, regulation (actuaries.asn.au, 2011). Microprudential regulation will help increase the resilience of individual banking institutions to periods of financial and economic stress. Macroprudential regulation will help increase resilience of risks that can build up and intensify over time across the banking sector (bis.org, 2010). The greater the resilience at the individual bank level, the lower the risk of system wide shocks. Basel III aims to improve risk management and governance, strengthen banks’ transparency and disclosures, and improve the banking sector’s ability to absorb financial and economic shocks (bis.org 2010). Basel III will take effect gradually over the next eight years (theaustralian.com.au, December 2010). APRA proposed to adopt the minimum Basel III requirements for the definition and measurement of capital to ensure that its prudential capital framework is aligned with global standards. The key elements of the Basel III