Essays on Key Elements of the Basel III as well as Its Impact on Australian Banking Coursework

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The paper 'Key Elements of the Basel III as well as Its Impact on Australian Banking " is a good example of a finance and accounting coursework.   On July 26, 2010, the Group of Governors and Heads of Supervision (Governors), the supervision group of the Basel Committee on Banking Supervision (Committee) (BCBS), pronounced ‘ wide-ranging agreement’ on the ultimate stipulations of the Committee’ s extensive ‘ Base III’ package of wealth and liquidity transformations projected in December 2009. Despite the fact that the general composition and the majority of the main elements of the Base III reforms remain integral, the Governors’ review of the accord reflects transformations in a number of major areas, including the description of capital, the handling of counterparty credit risk, essentials of the new worldwide power ratio, new regulatory capital safeguards, alleviation of general risk as well as the new international liquidity principles.

Basel III attempts to increase the general quantum of capital as well as its quality as a means of protecting against bank failures, together with enhanced quantification of risks that were poorly catered for under Basel II. Basel III has been developed by the BCBS in reaction to the recent financial crisis.

It is aimed at applying to globally- active banks, on a fully-consolidated basis. It evolved from Basel II and now includes liquidity requirements and offers increased attention to dealing with system-wide issues, like the interaction of prudential requirements as well as economic conditions. This paper is going to discuss the key elements of the Basel III as well as its impact on Australian banking and in particular the credit risk management (Brown, 2011). The fundamental elements of Basel III Since banks are at the centre of the credit intermediation procedure, both directly and indirectly through their function as lenders, market markers, providers of backstop liquidity, as well as payment services, it's evident that banking crises are linked with much deeper economic and financial downturns.

There are several factors that contribute to the build-up of the crisis, including excess liquidity, leading to too much credit and weak underwriting standards. The susceptibility of the banking sector to this jeopardy in the structure mainly resulted from surplus leverage, too little capital of poor quality, as well as too little liquidity safeguards.

The crisis was propelled by a pro-cyclical deleveraging procedure in addition to the interconnectedness of universally significant, too-big-to-fail monetary institutions. Lastly, there were a lot of shortcomings surrounding risk management, corporate governance, and market transparency, as well as the quality of supervision. The Basel Committee reforms (the Basel III key elements) deal with these weaknesses both through micro-prudential and macro-prudential measures (Al-Darwish, et al. 2011). The micro, institution-specific reforms (key elements) and how they promote enhanced monetary system flexibility First, the quality of capital has been greatly raised, with a major focus on common equity to absorb losses.

This is because credit and market value losses come directly out of retained earnings and thus common equity. For the duration of the emergency, it was the substantial common equity ratio that market members focused on to evaluate bank flexibility. This is as well the reason why regulatory presumptions are taken from this general equity element of capital. All the aspects of the definition of capital have fully been harmonized and they ought to be fully disclosed in the financial statements (Walter, 2010).

References

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Al-Darwish, A. et al. (2011). Possible Unintended Consequences of Basel III and Solvency II. International Monetary Fund. Retrieved on September 6, 2011 from http://www.imf.org/external/pubs/ft/wp/2011/wp11187.pdf

Brown, M. (2011). Basel III Capital and Liquidity Reforms Modified but Remain Largely Intact. The Mayer Brown Practices. Retrieved on September 6, 2011 from http://www.mayerbrown.com/publications/article.asp?id=9420&nid=6

Moody’s analytics. Basel III New Capital and Liquidity Standards – FAQs. Retrieved on September 6, 2011 from http://www.moodyskmv.com/download/Basel-III-FAQ.pdf

Sherman &Sterling (2011). The New Basel III Framework: Implications for Banking Organizations. Financial institutions advisory & financial regulatory. Retrieved on September 6, 2011 from http://www.shearman.com/files/Publication/f4e80b99-f0a1-4e3a-90f0-3bf21c7d0ce0/Presentation/PublicationAttachment/8d4e19cc-1ba3-4501-8fe6-63a6633d5b6b/FIA-033011-The_new_Basel_III_framework__Implications_for_banking_organizations.pdf

Walter, S. (2010). Speech on Financial Stability Institute, Bank for International Settlements, Basel, 3-4 November 2010. Basel Committee on Banking Supervision, at the 5th Biennial Conference on Risk Management and Supervision. Retrieved on September 6, 2011 from http://www.bis.org/speeches/sp101109a.htm

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