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).

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 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.

Transparency of Financial Regulation

2014 ◽  
pp. 257-285
Author(s):  
James R. Barth ◽  
Apanard (Penny) Prabha ◽  
Clas Wihlborg
Keyword(s):  
Financial Institutions ◽  
Financial Regulation ◽  
Global Financial Crisis ◽  
Capital Adequacy ◽  
Regulatory Environment ◽  
Basel Iii ◽  
The Public ◽  
Market Participants ◽  
The Global Financial Crisis

This chapter explores the concept of transparency in financial regulation from the perspective of the public. It looks at the role of risk assessment in transparency and the regulatory environment as well as the importance of pluralism in competition in the financial sector. The chapter first considers the meaning of “transparency of financial regulation” and its relation to simplicity. It then traces the progression of the Basel capital adequacy framework from Basel I to Basel III, along with the sources of lack of transparency in the framework. It also presents data showing the lack of transparency in the Basel Capital Accord and countries’ regulatory responses to the global financial crisis. Differences in the implementation of regulation regarding systemically important financial institutions are outlined. Finally, it discusses recent proposals for the separation or separability of financial activities with the goal of enhancing the transparency of banks’ activities for both market participants and resolution authorities.

Financial Stability Board: Is Its Institutionalization a Reality?

2015 ◽  
Vol 59 (11) ◽  
pp. 78-90
Author(s):  
E. Dzhagityan
Keyword(s):  
Financial Stability ◽  
Synergetic Effect ◽  
Financial Sector ◽  
Regulatory Reform ◽  
Banking Regulation ◽  
Risk Identification ◽  
Shadow Banking ◽  
Basel Iii ◽  
International Institute ◽  
Principles And Standards

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”.

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.

Arena Expansion and the Transnationalization of Business Advocacy

2018 ◽  
Author(s):  
Abraham L. Newman ◽  
Elliot Posner
Keyword(s):  
Internal Structure ◽  
International Finance ◽  
Financial Regulation ◽  
Banking Regulation ◽  
Great Powers ◽  
Soft Law ◽  
Financial Industry ◽  
Individual Industry ◽  
Industry Associations

Chapter 5 shifts the focus from soft law’s effects on great powers to its impact on influential business groups. It argues that by expanding arenas of contestation to the transnational level, soft law transforms business representation as well as individual industry associations. The chapter’s empirical focus is on banking regulation from the 1980s to the 2000s. Much of the literature on transnational banking standards centers on the role of industry associations and, in particular, on the Institute of International Finance. In this chapter, the authors explain the rise of direct industry participation in and influence over Basel-based standard setting. They show that the orientation and priorities of the IIF as well as its membership and internal structure were deeply conditioned by 1980s international soft law. The IIF’s transformation subsequently set off a series of changes to the ecology of financial industry associations and the politics of financial regulation.

Agent-based modeling for benchmarking banking regulation regimes: Application for the CBDC

2021 ◽  
Vol 16 (4) ◽  
pp. 261-272
Author(s):  
Vladimir Nechitailo ◽  
Henry Penikas
Keyword(s):  
Banking Regulation ◽  
Agent Based Modeling ◽  
Capital Adequacy ◽  
Fractional Reserve Banking ◽  
Reserve Requirement ◽  
Agent Based ◽  
The Great Depression ◽  
Reserve Banking ◽  
Von Mises ◽  
Capital Adequacy Regulation

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.

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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