Essays on Implications of Basel III Proposals Case Study

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The paper "Implications of Basel III Proposals " is a great example of a finance and accounting case study.   Following the aftermath of the 2007-2008 financial crisis, many financial institutions world over were faced with numerous challenges which affected their performance both locally and globally. The problem was enhanced by the fact that many banks were highly interconnected in such a way the change of policy of one bank affected almost the rest of the sector and all other key players. The crisis was as a result of the fast growth of the banking industry more especially from the developed countries which made an advance to serve their customers by operating globally.

In the process of doing this, the banks were expected to move the traditional models of doing business to new ways in order to verge with the competition globally (Walter 2008). This step made the industry more complex and very competitive to operate in. Following the collapse of financial institutions, The Basel Committee on Banking Supervision was formed in 2008 to propose some of the recommendations that could be used to help sort out the financial crisis.

The committee was composed of representatives from America, Asia and Europe continents. The Committee was expected to address the issue of market failures that had led to many banks to collapsing by failing to break-even (Reinhart and Rogoff 2009). The committee was charged with the responsibility of establishing the regulatory framework that helps strengthen banks and enhance their resilience in response to any stress. The framework was also supposed to develop a macroprudential focus that will address the risks that are found in the wider network of the banking sector.

The primary objective of this article is to discuss the major implications of the Basel III reforms and more recent regulatory initiatives in the banking sector in the UK. Main Basel III reform proposals In April 2009, the Committee and the member countries agreed to come up with several reforms that will be used to improve the resilience among individual banks and the sector as a whole. The Basel Committee on Banking Supervision (BCBS), at the end of 2009, provided various guidelines and proposals that that will be used to the bank resilience.

By the end of September 2010, a good number of proposals had been agreed on (Basel Committee on Banking Supervision. 2009). The key components of the BCBS proposals included: Ensure higher and better quality service delivery by use of common equity policy and loss absorption policy features. Introduction of the leveraged ration system that is non-risk for use as a measure. The other key component in the proposal is the one that talks about the tighter liquidity standards including liquidity asset buffer, liquidity coverage and long-term funding requirements to regulate the maturity mismatches. Better recognition of risk for both the market and the other counterparty risks. Capital reservation buffers As a guideline to the framework, the Committee was of the view that having common equity will play a major role in representing a higher proportion of capital and consequently enhance loss absorption rates.

The minimum loss absorption will be expected to increase to 4.5% from 2% in the current standards. The 2.5% increase is the capital conservation buffer. Global liquidity was considered by the committee as a major key factor in the reform.

The Liquidity Coverage Ratio (LCR) should be used to make sure that banks which are active globally have up to 30 days to access high level and quality liquidity assets to manage their short-term bank activities and other related systematic shocks as well ensure that the bank is protected from depending on wholesale liabilities such as secured funding (Roger & Vlček 2011). This reform is supposed to take effect as from 2015 and it is aimed at helping banks to avoid depending so much on financial sources that are really volatile and therefore promote internal asset development to manage shocks whenever they arise.

Development of policies that enhance macro-prudential approaches has also been given consideration under the proposals.


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