Banking regulation and the Basel III Accord: an examination of the risks and shortcomings posed by Basel III
In 1974 the Committee on Banking Regulations and Supervisory Practices was created and supported by the Bank for International Settlements. It was envisaged that a forum should be created so that regular interaction and co-operation could be achieved by member countries to improve financial stability and to enhance the quality of banking supervision. The aim of this research is to examine the risks and shortcomings posed by Basel III; specifically capital ratios, credit rating agencies and value-at-risk. These are based on the author’s initial research that indicated these to be the most problematic. The research also aims to provide recommendations in order to improve Basel III. Additionally, the research includes Basel I and II to illustrate the developments, problems and milestones to create a wider appreciation of this area. The title of this research is tackled extensively in Chapters 4 and 5 where the risks and shortcomings are considered in the former and recommendations are put forward in the latter. This consists of changes that are taking place or have been suggested. It is argued that there is still much work to do, but there has been significant improvement(s). The main contribution to knowledge and understanding the field in the form of originality is found throughout the research in its treatment of the subject matter and can also be viewed substantially in Chapter 5. The recommendations can be summarised below. Capital Ratios 1. A longer implementation period for liquidity coverage ratio and high quality liquid assets. 2. A longer implementation period for high quality liquid assets in a European context. 3. High quality liquid assets need re-categorisation. 4. The creation of a dedicated liquidity risk management team. Credit Rating Agencies 1. International Organisation of Securities Commissions model and more enforceability through regulators and governments. 2. Tighter regulation through the Basel regulations. 3. The creation of a public credit rating agency. 4. Uniformity on whether agencies offer opinions or advice and more accountability through the Basel regulations. Value-at-Risk 1. Research and investment to improve credit value adjustment value-at-risk. 2. The use of all three conventional approaches - Analytical Variance/Covariance, Historical, and Monte Carlo. 3. Penalising those who manipulate value-at-risk to turn products/positions from high risk to low risk.
banking, Basel, capital, CRA, regulation, VaR
Networked Digital Library of Theses and Dissertations