Get Basel III right and avoid Basel IV ！！！

The words of title are said by Thomas M. Hoenig who is the vice-chairman of the Federal Deposit Insurance Corporation. In his article, he mainly argues Basel III and declare bank should make their capital adequacy ratio better actually. As we all know, Basel accord plays an important role in regulating bank. Now, let me talk about it, especially for the recent lanch of Basel III.

The Basel Accords refer to the banking supervision Accords—Basel I, Basel II and Basel III—issued by the Basel Committee on Banking Supervision. It has become an international standard of banking regulation. 

During the time of Europe and the United States economy struggling in a recession edge, Basel committee on banking supervision which from 27 economies of the central bank and banking regulators released Basel III on September 11, 2012.

Basel III based on Basel I and Basel II, which not only raised bank's capital adequacy ratio requirement, but also pays more attention to the quality of bank capital. What’s more, it adds the new capital buffer requirement and cooperates with liquidity constraints. The main purpose is to ensure the robustness of bank business and make the financial system stability and security. Now Basel III has been implemented, look at this figure:

 

 

Source: http://www.avondaleam.com/2011/09/basel-iii-tier-1-capital-requirements.html

 

Basel III allow commercial banks' the core tier 1 capital (common equity and retained earnings) will rise from 3.5% to 4.5% between 2013 and 2015. It also adds capital conservation buffer which will start at 0.625% of RWAs in 2016 and reach 2.5% of RWAs in 2019. Capital conservation buffer can be used to deal with financial crisis in the future. These rules reflect the determination of the international community to strengthen capital supervision. Basel committee put forward higher capital requirement for banking proprietary trading, derivatives and asset securitization.

 

The increasing of commercial banks’ safety index in Basel III means the global banking regulatory ushered in a new era after the most serious financial crisis. The most significant feature is that the security has far beyond the efficiency of banking in the core value choice of banking regulation.

 

We can see this video and acquire more knowledge about Basel III.