Basel III and Responding to the Recent Financial Crisis: Progress made by the Basel Committee in relation to the Need for Increased Bank Capital and Increased Quality of Loss Absorbing Capital
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Developments since the introduction of the 1988 Basel Capital Accord have resulted in
growing realisation that new forms of risks have emerged and that previously existing and
managed forms require further redress. The revised Capital Accord, Basel II, evolved to a
form of meta regulation – a type of regulation which involves the risk management of internal
risks within firms.
The 1988 Basel Accord was adopted as a means of achieving two primary objectives: Firstly,
“…to help strengthen the soundness and stability of the international banking system – this
being facilitated where international banking organisations were encouraged to supplement
their capital positions; and secondly, to mitigate competitive inequalities.”
As well as briefly outlining various efforts and measures which have been undertaken and
adopted by several bodies in response to the recent Financial Crisis, this paper considers why
efforts aimed at developing a new framework, namely, Basel III, have been undertaken and
global developments which have promulgated the need for such a framework. Further, it
attempts to evaluate the strengths and flaws inherent in the present and future regulatory
frameworks by drawing a comparison between Basel II and the enhanced framework which
will eventually be referred to as Basel III.
Keywords
HG Finance