Basel III Framework: Importance, Impact, Bank Failures, Shadow Banking, Small Business Finance, Financial Innovation

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Assignment-Finance

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Table of Contents
Introduction......................................................................................................................................2
Importance of BASEL III................................................................................................................6
Impact of Basel III...........................................................................................................................7
Bank Failures...................................................................................................................................8
Shadow Banking..............................................................................................................................9
Small Business Finance............................................................................................................10
Financial Innovation......................................................................................................................11
References......................................................................................................................................11
Introduction
Basel III is considered as an international regulatory approach which is introduced to provide a
set of reforms to improve the current regulations, rules, supervisions and risk management factor
in the banking sector across the globe. In the year 2009, the Basel Committee on the Banking
revision released the first version of Basel III. It was introduced to provide banks all the
requirements to face credit crisis, for maintenance of leverage ratio and to meet the minimum
capital requirements.
According to the analysis and statement of Bank for International Settlements Basel III can be
defined as set of comprehensive reforms and measures which is introduced and developed by the
Basel Committee for the banking revisions to improve the banking regulation, management of
risk factor and supervision of the banking sector. These regulation are made to measure;
 For the improvement of the banking sector and to ensure stability in case of financial and
economic stress raised
 For the improvement and development of corporate governance and management of risk
factor
 To maintain transparency and disclosure in the banking statements and guidelines.

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In December 2010, the Basel Committee issued the rules and regulation which contains the
details regarding the global regulatory standards on the capital adequacy and liquidity ration.
This set of regulatory framework was approved and agreed by the Governor and heads of the
Supervision and was also endorsed by leaders of G20 present at the Seoul Summit which was
held in November. The aforesaid committee also released the results of the analysis on the QIS
i.e. quantitative impact study.
The chairman of Basel Committee and President of Netherland Banks Mr. Nout Wellink
explained the Basel III concept as
The Basel III concept is a developed and improved concept and also considered it as an
achievement. It helps to maintain the financial stability and plays an a major role in the economic
growth of a country. With the higher requirement of capital including the global liquidity
framework will reduce the crisis happening in the banking sector presently and in future. He was
also of the opinion that the changes in the banking regulation provided by the Basel Committee
have helped the banking sector an agenda for the internationally active banks.
The rules and regulations lay down for the Basel III concept includes both micro and macro
prudential factors. The framework of Basel III has set higher and quality capital, coverage of
risk, introduced the leverage ratio etc. for the measurement and promotion of the capital that can
be considered at the time of stress period and the global liquidity standards.
Transition and implementation
The Basel Committee has ensured the consistent global application and implementation of the
Basel III Framework. The standards of the Basel III Framework are applied gradually so that the
banking sector can be improved through the higher capital and liquidity standards at the time of
supporting the economy of the country.
The leverage ratio can be used for the transition period to assess the design and caliber of the
business models and credit cycles of the business. Basing on the aforesaid result, the adjustments
of the same will be carried forward in the year 2017 with respect to migrating the pillar 1
treatment on 1 January 2018 which is based on that review and caliber.