scholarly journals THE NEW CAPITAL ADEQUACY FRAMEWORK (BASEL III) OPTIONS AND ISSUES IN COMMERCIAL BANKS OF LITHUANIA

Ekonomika ◽  
2015 ◽  
Vol 93 (4) ◽  
pp. 119-134 ◽  
Author(s):  
Filomena Jasevičienė ◽  
Daiva Jurkšaitytė
Keyword(s):  
Banking Regulation ◽  
Capital Requirements ◽  
Capital Adequacy ◽  
System Stability ◽  
Basel Iii ◽  
Management Problem ◽  
Bank Capital ◽  
Factors Influencing ◽  
Capital Adequacy Ratio ◽  
The World

Currently, banking is one of the most regulated activities in the world, because banks are the most important institutional units engaged in financial intermediation and affects not only the whole national economy of the country, but the global financial market as well. One of the key components of banking regulation are requirements expected for the bank capital, which prevent the bank from various unforeseen risks incurring substantial losses and are a sort of guarantee to maintain the financial system stability. For this reason, it is useful to find out what factors affect the capital adequacy ratio, and what measures the banks are going to take in order to meet the new capital requirements. The present research reveals the options of the implementation of the new system and the main problems faced by banks. The paper consists of four main parts: review of theory and literature, the research methodology of the factors influencing the capital adequacy, the study of factors influencing the capital adequacy ratio, and the capital adequacy management problem areas according to the Basel III requirements and conclusions.

scholarly journals Dynamics of Risk Factors Affecting the Capital Adequacy Ratio with Special Reference to UCO Bank

2019 ◽  
Vol 8 (2) ◽  
pp. 10-13
Author(s):  
Preeta Sinha ◽  
Protik Basu
Keyword(s):  
Market Risk ◽  
Capital Adequacy ◽  
Basel Iii ◽  
Bank Capital ◽  
Financial Reports ◽  
Factors Affecting ◽  
Operational Risks ◽  
Capital Adequacy Ratio ◽  
Using Data ◽  
Asset Quality

To reinforce the stability of the financial system, policy makers and the Basel committee have proposed Basel accord to ensure that financial institutions maintain sufficient capital buffers. Basel III framework emphasizes on sustained increase in bank capital in order to absorb the potential credit, market and operational risks. The capital adequacy requirement under Basel III norms are directly linked to the PCA (Prompt Corrective action) framework which has disrupted the flow of credit in the economy. Market risk, Credit risk, Operational risk and deposits are some of the factors affecting the capital adequacy ratio (CAR) which influences the bank performances. This study aims at analysing the most important factor responsible for the shrinking liquidity due to adherence of stringent capital adequacy ratio imposed by RBI. Currently 11 public sector Banks out of 21 PSUs under PCA has sequentially shrunk their loan book including UCO Bank. The bank’s asset quality has worsened over the years. Using regression analysis, this paper seeks to study the major determinants of Capital Adequacy ratio using data sets for the period from 2009 to 2018 of UCO bank. The data was collected from the financial reports of the UCO bank for the aforesaid period. Among the parameters considered, it was found that deposits affect the CAR the most and market risk has the lowest impact on CAR.

In Search of Stability: Bank Capital and Liquidity Requirements

2020 ◽  
pp. 52-70
Author(s):  
Scott James ◽  
Lucia Quaglia
Keyword(s):  
Banking Regulation ◽  
Capital Requirements ◽  
Political Support ◽  
Basel Iii ◽  
Bank Capital ◽  
Financial Industry ◽  
Domestic Constraints ◽  
The Uk ◽  
Institutional Architecture ◽  
Crd Iv

Following the financial crisis, UK preferences shifted decisively in favour of trading up bank capital and liquidity requirements. To reassure voters, elected officials intervened in the regulatory process by strengthening the domestic institutional architecture for banking regulation. Financial regulators leveraged this political support to overcome resistance from the financial industry, but also pushed for international/EU harmonization of capital requirements to avoid damaging the UK’s competitiveness. Internationally, UK regulators therefore acted as pace-setters and exerted significant influence over the design of the Basel III Accord. However, at the EU level, the UK was forced to act as a foot-dragger by prolonging negotiations over the Capital Requirements Directive IV (CRD IV) in an attempt to resist Franco-German efforts to water down the rules. But UK negotiators were more successful in leveraging domestic constraints to oppose the Commission’s attempt to impose the ‘maximum’ harmonization of bank capital.

U. S. Investment Banks in the Context of the Post-Crisis International Banking Regulation Reform

2020 ◽  
Vol 2020 (1) ◽  
pp. 21-40
Author(s):  
Eduard Dzhagityan ◽  
Anastasiya Podrugina ◽  
Sofya Streltsova
Keyword(s):  
Financial Stability ◽  
Banking Regulation ◽  
Capital Requirements ◽  
Capital Adequacy ◽  
Investment Banks ◽  
Basel Iii ◽  
International Banking ◽  
Minimum Capital ◽  
Negative Effect

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.

scholarly journals An Optimal Portfolio and Capital Management Strategy for Basel III Compliant Commercial Banks

2014 ◽  
Vol 2014 ◽  
pp. 1-11 ◽  
Author(s):  
Grant E. Muller ◽  
Peter J. Witbooi
Keyword(s):  
Optimal Investment ◽  
Investment Strategy ◽  
Capital Adequacy ◽  
Basel Iii ◽  
Bank Capital ◽  
Optimal Investment Strategy ◽  
Capital Adequacy Ratio ◽  
Asset Portfolio ◽  
The Interest Rate ◽  
Strategy Subject

We model a Basel III compliant commercial bank that operates in a financial market consisting of a treasury security, a marketable security, and a loan and we regard the interest rate in the market as being stochastic. We find the investment strategy that maximizes an expected utility of the bank’s asset portfolio at a future date. This entails obtaining formulas for the optimal amounts of bank capital invested in different assets. Based on the optimal investment strategy, we derive a model for the Capital Adequacy Ratio (CAR), which the Basel Committee on Banking Supervision (BCBS) introduced as a measure against banks’ susceptibility to failure. Furthermore, we consider the optimal investment strategy subject to a constant CAR at the minimum prescribed level. We derive a formula for the bank’s asset portfolio at constant (minimum) CAR value and present numerical simulations on different scenarios. Under the optimal investment strategy, the CAR is above the minimum prescribed level. The value of the asset portfolio is improved if the CAR is at its (constant) minimum value.

scholarly journals Developing “best practices” for bankers’ pay in line with Basel III.

2011 ◽  
Vol 1 (3) ◽  
pp. 7-16 ◽  
Author(s):  
Peiyi Yu ◽  
Jessica Hong Yang ◽  
Nada Kakabadse
Keyword(s):  
Financial Crisis ◽  
Risk Taking ◽  
Global Financial Crisis ◽  
Capital Requirements ◽  
Capital Adequacy ◽  
Incentive Compensation ◽  
Basel Iii ◽  
Bank Capital ◽  
Bank Executives ◽  
The Global Financial Crisis

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.

Basel III: In quest for criteria and scenarios of the banking regulation reform advancement

2016 ◽  
pp. 77-93 ◽  
Author(s):  
E. Dzhagityan
Keyword(s):  
Financial Regulation ◽  
Cost Optimization ◽  
Spillover Effect ◽  
Regulatory Reform ◽  
Banking Regulation ◽  
Capital Adequacy ◽  
Basel Iii ◽  
Eurasian Economic Union ◽  
Downward Pressure ◽  
Crisis Recovery

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).

Basel Capital Adequacy Ratio Standard in The Light of Islamic Law Perspective

2016 ◽  
Vol 1 ◽  
pp. 308-317
Author(s):  
Adi Rahmanur Ibnu
Keyword(s):  
Financial Crises ◽  
Global Economy ◽  
Banking Sector ◽  
Islamic Law ◽  
Capital Requirements ◽  
Capital Adequacy ◽  
Minimum Capital ◽  
Capital Adequacy Ratio ◽  
Global Banking ◽  
Banking Development

Bank is one of the most important pillars of economy activities. However, banking sector has a real potential crisis threat. Alongside with the steady current global banking development, financial crises that have happened clearly affected global economy. Based on that situation, BIS (Bank for International Settlement) – an international financial standard setting organization, realizes the urgency to establishan international financial standard and supervision to anticipate future potential financial crises. This research aims to identify how Capital Adequacy Ratio Standard in Basel Capital Accord (II) based on Islamic law perspective. The research is conducted by analyzing Basel Capital Accord published by BIS. The research uses library research method to find out the aimed result. The focus is on the 1st pillar of Basel II publication that is Minimum Capital Requirements (CAR) policy. CAR, as an Islamic economics policy, will be analyzed using falāḥ approach. Falāḥ is an Islamic economics objective that consists of happiness, success, accomplishment or good luck concept. The earthly dimension of falāḥ has some parameters that can be used to analyze Islamic economics policy. Additionally, the Islamic fiqh maxim takes part in analyzing the policy. The maṣlaḥat concept in fiqh maxim approach shares aim with falāḥ concept in the sense that all of sharia law aims for success, happiness, eternal survival etc. The maṣlaḥat can be accomplished by extinguishing mafsadat or seizing maṣlaḥat. The maṣlaḥat aspect is essential to determine the compatibility Basel Capital Accord with jurisprudential maxim i.e harm must be dispelled (al-dharāru yuzāl). The conclusion results are, 1) Basel Capital Accord focuses on macro-prudential aspect in order to anticipate potential financial crises, 2) beneficial/interest (maṣlaḥat) aspects of the hereafter, cooperation principle, justice, fairness and the prohibition of exploitation are not the core value of Basel Capital Accord frame work, thus 3) the achievement of maslahat as intended by sharia i.e. jurisprudential maxim are not convincing. Therefore, 4) Basel Capital Accord as a regulation basis is not in line with jurisprudential maxim i.e harm must be dispelled (al-dharāru yuzāl).

Islamic Banking Regulations in Light of Basel II

2010 ◽  
Vol 27 (1) ◽  
pp. 74-101 ◽  
Author(s):  
M. Kabir Hassan ◽  
Muhammad Abdul Mannan Chowdhury
Keyword(s):  
Financial Institutions ◽  
Banking Regulation ◽  
Capital Requirements ◽  
Basel Ii ◽  
Capital Adequacy ◽  
Regulatory Agencies ◽  
Islamic Banking ◽  
Islamic Banks ◽  
Minimum Capital ◽  
Regulatory Standards

This paper seeks to determine whether the existing regulatory standards and supervisory framework are adequate to ensure the viability, strength, and continued expansion of Islamic financial institutions. The reemergence of Islamic banking and the attention given to it by regulators around the globe as to the implications of a recently issued Basel II banking regulation makes this article timely. The Basel II framework, which is based on minimum capital requirements, a supervisory review process, and the effective use of market discipline, aligns capital adequacy with banking risks and provides an incentive for financial institutions to enhance risk management and their system of internal controls. Like conventional banks, Islamic banks operate under different regulatory regimes. The still diverse views held by the regulatory agencies of different countries on Islamic banking and finance operations make it harder to assess the overall performance of international Islamic banks. In light of the increased financial innovation and diversity of instruments offered in Islamic finance, the need to improve the transparency of bank operations is particularly relevant for Islamic banks. While product diversity is important in maintaining their competitiveness, it also requires increased transparency and disclosure to improve the understanding of markets and regulatory agencies. The governance of Islamic banks is made even more complex by the need for these banks to meet a set of ethical and financial standards defined by the Shari`ah and the nature of the financial contracts banks use to mobilize deposits. Effective transparency in this area will greatly enhance their credibility and reinforce their depositors and investors’ level of confidence.

scholarly journals Capital requirements, risk-taking and welfare in a growing economy

2021 ◽  
Author(s):  
Pierre-Richard Agénor ◽  
Luiz A. Pereira da Silva
Keyword(s):  
Risk Taking ◽  
Default Risk ◽  
Limited Liability ◽  
Capital Requirements ◽  
Optimal Choice ◽  
Capital Adequacy ◽  
Financial Supervision ◽  
Capital Adequacy Ratio ◽  
Monitoring Effort ◽  
Growing Economy

AbstractThe effects of capital requirements on risk-taking and welfare are studied in an overlapping generations model of endogenous growth with banking, limited liability, and government guarantees. Capital producers face a choice between a safe technology and a risky, more productive but socially inefficient, technology. Bank risk-taking is endogenous. As a result of a skin in the game effect—motivated either as an aggregate externality, or as the outcome of the optimal choice of monitoring effort by individual banks—default risk is inversely related to the capital adequacy ratio. Numerical simulations show that in an equilibrium where banks extend both safe and risky loans, the skin in the game effect must be sufficiently strong for a welfare-maximizing regulatory policy to exist. These results remain qualitatively similar with endogenous monitoring costs and a strong effect of monitoring on entrepreneurial moral hazard. However, numerical experiments also suggest that the optimal capital adequacy ratio may be too high in practice and may require concomitantly a broadening of the perimeter of regulation and a strengthening of financial supervision to prevent disintermediation and distortions in financial markets.

Islamic Banking Regulations in Light of Basel II

2010 ◽  
Vol 27 (1) ◽  
pp. 74-101
Author(s):  
M. Kabir Hassan ◽  
Muhammad Abdul Mannan Chowdhury
Keyword(s):  
Financial Institutions ◽  
Banking Regulation ◽  
Capital Requirements ◽  
Basel Ii ◽  
Capital Adequacy ◽  
Regulatory Agencies ◽  
Islamic Banking ◽  
Islamic Banks ◽  
Minimum Capital ◽  
Regulatory Standards

This paper seeks to determine whether the existing regulatory standards and supervisory framework are adequate to ensure the viability, strength, and continued expansion of Islamic financial institutions. The reemergence of Islamic banking and the attention given to it by regulators around the globe as to the implications of a recently issued Basel II banking regulation makes this article timely. The Basel II framework, which is based on minimum capital requirements, a supervisory review process, and the effective use of market discipline, aligns capital adequacy with banking risks and provides an incentive for financial institutions to enhance risk management and their system of internal controls. Like conventional banks, Islamic banks operate under different regulatory regimes. The still diverse views held by the regulatory agencies of different countries on Islamic banking and finance operations make it harder to assess the overall performance of international Islamic banks. In light of the increased financial innovation and diversity of instruments offered in Islamic finance, the need to improve the transparency of bank operations is particularly relevant for Islamic banks. While product diversity is important in maintaining their competitiveness, it also requires increased transparency and disclosure to improve the understanding of markets and regulatory agencies. The governance of Islamic banks is made even more complex by the need for these banks to meet a set of ethical and financial standards defined by the Shari`ah and the nature of the financial contracts banks use to mobilize deposits. Effective transparency in this area will greatly enhance their credibility and reinforce their depositors and investors’ level of confidence.

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