How Did Lending Change as Basel III Capital and Liquidity Requirements Were Introduced

HOW DID LENDING CHANGE AS
BASEL III CAPITAL AND LIQUIDITY
REQUIREMENTS WERE
INTRODUCED

Contents
Chapter 1: Introduction....................................................................................................................3
Research questions.................................................................................................................3
Research aims and objectives.................................................................................................3
Research Aim.........................................................................................................................3
Research Objectives...............................................................................................................3
Literature Review.............................................................................................................................4
Research Methodology..................................................................................................................10
Research Methodology.........................................................................................................10
Research Strategy.................................................................................................................11
Sampling...............................................................................................................................11
Data Analysis and Finding.............................................................................................................12
Conclusions and Recommendations..............................................................................................14
REFERENCES..............................................................................................................................16

Chapter 1: Introduction
In reference to the risk-weighted assets, the capital adequacy calculates resources of the
business. The capital-to-risk asset-weighted ratio facilitates worldwide financial stability and
performance. In compliance with Basel III, the banks must establish a minimum capital
adequacy threshold of 8%. The capital structure shall be measured by the allocation of tier 1
resources to tier 2 but by the distribution of risk-weighted securities. Tier 1 money, which
comprises capital and declared assets, is a central resource of a bank. This capital bears losses
without forcing the bank to suspend operational activities; in the case of insolvency, tier 2 capital
would incur losses. This paper aims to examine the effects of the economic meltdown on bank
lending through resources and funding as well as the latest steps prompted by the Basel III legal
framework. The paper suggests that the required steps are expected by the banks boost the degree
of capitalisation and adjust the expenditure framework to follow Basel III Capital Standards
aligned with liquidity criteria in an appropriate manner.
Research questions
1. What are the main concepts of Basel III capital?
2. Define all the new measures of the capital and liquidity by Basel III regulatory framework?
3. Kindly elaborate impact of capital and liquidity on bank-lending?
Research aims and objectives
Research Aim
“To investigate HOW LENDING CHANGE AS BASEL III CAPITAL AND LIQUIDITY”. A CASE
STUDY ON HSBC BANK.
Research Objectives
1. To determine the concepts of Basel III capital concept this changes banking lending
system.
2. To analyse the new measures of capital and liquidity inspired by the Basel III regulatory
framework.
3. To evaluate and assesses the impact of capital and liquidity on bank-lending following
the 2008 financial crisis

Literature Review
The concepts of Basel III capital that changes banking lending system
In the opinion of Taskinsoy, (2017) basel III is a series of the international finance
corporation Settlements' foreign banking rules developed to encourage foreign financial stability.
The Basel III rules are intended to reduce economic disruption incurred by unnecessary risk-
taking banks. Difficulties with the initial deal were exposed mostly during 2007 financial crises.
In November 2010, Basel III was accepted by representatives of the bank for international
settlements. Specifically from 2013 to 2015, the rules were adopted, although multiple
amendments took effect in March 2019 and January 2022. The influence of Basel III on capital
markets remains unclear, while rising financial supervision would definitely be favourable for
shareholders in banking sector. The actual effect of Basel III would rely on how it is applied in
the future, but an ultimately healthier foreign financial environment would be the optimal
scenario. Banks continue to retain more cash against their securities, thus growing the scale and
potential for leveraging of their financial statements. Although rules before another financial
meltdown were being debated, the reforms intensified its need for reform. There are some
significant improvements in Basel III Guidelines referred to as capital frameworks of the banks.
According to Gavalas, (2015) the first is that the necessary equity, as a proportion of assets, has
raised from 2% to 4.5%44. An extra 2.5% reserve is expected to raise the overall equity
threshold to 7%. It cushion will be exploited during periods of financial hardship, but companies
have to compensate for distributions and invest money otherwise. By 2019, companies had the
potential to introduce these reforms and prevent a drastic credit moratorium as companies were
trying to update their balance sheets. Since of these restrictions in turn, banks can in fact be less
competitive. The equity threshold of 7 % is a target and other banks would generally want to
hold a marginally higher amount to retain a cockerel. The cost of capital would potentially
decline for banks if financial companies were viewed as healthier. Improved bank flexibility will
reduce debt costs. Around the same moment, a better P / E ratio may be allocated to banks with a
less volatile capital structure. Improved supervision of the bank is potentially beneficial for
investors in debt markets. Thus, enhanced capital demands would mean healthier transactions in
securities provided by banks. Around the same period, greater flexibility in the financial sector
will give bond holders a healthier framework even if economic development is marginally
weaker. There would be less proof of the effect on foreign exchange markets, but improved