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1 – 10 of over 4000Noor Ulain Rizvi, Smita Kashiramka and Shveta Singh
This paper aims to develop a holistic understanding of the state of implementation of the Basel III regulation in India. It offers essential insights related to its impact on the…
Abstract
Purpose
This paper aims to develop a holistic understanding of the state of implementation of the Basel III regulation in India. It offers essential insights related to its impact on the macroeconomy, non-performing assets, capital flows and modifications required for the Indian banking sector. Another central aspect of this study is the identification of challenges faced by bankers in implementing Basel III in India.
Design/methodology/approach
A survey was conducted with the help of a well-structured close-ended questionnaire. It was based on six themes identified after a comprehensive review of the literature. Seven experts validated the construction of the questionnaire. A total of 18 responses (42.8%) were received.
Findings
The findings substantiate the importance of Basel III regulations. Although high costs and roadblocks are involved in its implementation, yet, the benefits are notable. Banking experts sense the necessity to modify the Tier 1 ratio, risk-weights and ratings. It is felt that credit ratings will impact the capital and investment flows received by India.
Research limitations/implications
The number of responses limits the ability to conduct several statistical tests.
Practical implications
The findings support the industry’s view that Basel III focuses more on industrialized countries and that many emerging countries lack the technology and infrastructure to implement it.
Originality/value
Since the implementation of Basel, the norm is a continuous process; the findings provide vital insights to regulators and academicians focusing on the Indian banking sector about its current state to aid in developing a future roadmap. This paper delivers important values as follows: a holistic view of banking experts on Basel III in India, required modifications, its impact and future scope of research in this area.
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– The purpose of this paper is to aid understanding of the changes in Basel Committee on Banking Supervision (BCBS) regulatory strategies after the global financial crisis.
Abstract
Purpose
The purpose of this paper is to aid understanding of the changes in Basel Committee on Banking Supervision (BCBS) regulatory strategies after the global financial crisis.
Design/methodology/approach
The author uses the credit valuation adjustment (CVA) charge reform as a test case for inquiring whether BCBS has departed from its pre-crisis facilitative regulatory strategy path. The regulatory strategy of the CVA charge is discussed.
Findings
The charge exhibits a new regulatory strategy that BCBS has adopted. It seeks to manipulate market structures by imposing risk-insensitive capital charge methodologies.
Originality/value
The paper offers a new heuristic to analyse regulatory initiatives and their significance. The CVA charge has not been subject to a regulatory theory-based analysis in prior literature.
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Basel 2 has been the subject of intense debate amongst bankers around the world. It will replace the original Basel Accord of 1988, but unlike the latter it looks as if the new…
Abstract
Basel 2 has been the subject of intense debate amongst bankers around the world. It will replace the original Basel Accord of 1988, but unlike the latter it looks as if the new Accord will undermine the global consensus. It is a costly exercise and the heightened risk of regulatory arbitrage may yet distort the competitive landscape. In particular, the completely different ways in which Basel 2 will be implemented in the USA and EU pose a challenge for institutions that operate on a global scale. This article is a brief examination of the key differences and challenges posed by the draft Accord – the prospects for a “final” draft being truly final seem remote and Basel 3 may well have to be on the agenda before the ink is dry on Basel 2.
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Li Chen, David Emanuel, Lina Z. Li and Mu Yang
The authors examine whether Chinese banks use loan loss provisions (LLPs) for capital management, income smoothing and signaling purposes, and assess the effect of the recent…
Abstract
Purpose
The authors examine whether Chinese banks use loan loss provisions (LLPs) for capital management, income smoothing and signaling purposes, and assess the effect of the recent regulatory changes following the implementation of Chinese Basel III on such behavior.
Design/methodology/approach
The authors use a unique set of hand-collected data on bank capital combined with financial data downloaded from the China Stock Market and Accounting Research (CSMAR) database. Multivariate regression models are used to test our hypotheses.
Findings
The authors find that while there is no evidence to suggest capital management practice before the Chinese Basel III, the implementation of the new regulations induced listed banks to manage tier-1 capital via LLPs. The authors also find strong support that Chinese banks engage in income smoothing via LLPs management, and there is no change in such tendency following the issuance of Chinese Basel III. Lastly, the authors do not find support for the signaling behavior by Chinese banks using LLPs.
Practical implications
The authors’ evidence suggests that elevated tier-1 capital and provisioning requirements may induce capital management by banks, which indicates a potential unintended effect brought forth by the new Basel regulations.
Originality/value
To the best of authors’ knowledge, this study is the first to examine Chinese banks' behavior relating to LLPs in terms of capital management, income smoothing and signaling. In particular, the authors use a sample containing a large number of Chinese commercial banks – previously a major data issue in other studies.
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– This paper aims to highlight the new regulatory framework established by Basel III.
Abstract
Purpose
This paper aims to highlight the new regulatory framework established by Basel III.
Design/methodology/approach
This paper provides a critical review of the existing literature concerning bank supervision while providing an overview of the transition from Basel I to Basel III rules and critical appraisal of the current regulatory framework. Review of the existing literature.
Findings
Basel III introduces new measures in favor of bank stability and in order to mitigate the propagation of financial shocks. But on the other hand the new regulatory framework adds an extra burden to banks’ business plans affecting credit policies and thus the real economy. Another issue that is not properly addressed is the rising of financial innovations that are able to pass by the new regulations. Overall Basel III rules are moving to the right direction but need to stay always up-to-date in order to catch up with the modern ever-evolving financial system. Pros and cons. Need for improvement.
Originality/value
The paper presents an up-to-date review of Basel rules with future prospects.
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Introducing radical changes to the methodologies for the determination of capital requirements, the final stage of the Basel III standards, which is referred to as “Basel IV” by…
Abstract
Purpose
Introducing radical changes to the methodologies for the determination of capital requirements, the final stage of the Basel III standards, which is referred to as “Basel IV” by the industry, will be a significant challenge for the global banking sector. This article reviews the main components of the new framework, analyses its ongoing implementation in the European Union and discusses its potential impact on banks, putting forward policy recommendations.
Design/methodology/approach
This article uses primary sources such as the publications by the Basel Committee for Banking Supervision and the European Commission. It also reviews the secondary sources, including both academic articles and analyses by various stakeholders. However, this article does not undertake any empirical analysis.
Findings
This article discusses that Basel IV will introduce strategic, operational and regulatory challenges for banks in scope. It also identifies a number of areas which are subject to further debate in the European Union such as the enhanced due diligence requirements under the new credit risk framework; governance, reporting and control rules under the operational risk framework; exemptions for certain derivative transactions under the credit valuation adjustment framework and the level of application of the capital floors within banking groups. This article concludes that the global implementation of the reforms by all jurisdictions and transposition into national banking laws concurrently with the European Union in line with the Basel Committee's implementation timeline is important from a financial stability standpoint.
Originality/value
The article presents an up-to-date and comprehensive review of the practical implications of Basel IV standards. It analyses the implementation of the standards in the case of the European Union, reviews the potential policy implications and presents recommendations for risk management practitioners.
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Silvio Tarca and Marek Rutkowski
This study aims to render a fundamental assessment of the Basel II internal ratings-based (IRB) approach by taking readings of the Australian banking sector since the…
Abstract
Purpose
This study aims to render a fundamental assessment of the Basel II internal ratings-based (IRB) approach by taking readings of the Australian banking sector since the implementation of Basel II and comparing them with signals from macroeconomic indicators, financial statistics and external credit ratings. The IRB approach to capital adequacy for credit risk, which implements an asymptotic single risk factor (ASRF) model, plays an important role in protecting the Australian banking sector against insolvency.
Design/methodology/approach
Realisations of the single systematic risk factor, interpreted as describing the prevailing state of the Australian economy, are recovered from the ASRF model and compared with macroeconomic indicators. Similarly, estimates of distance-to-default, reflecting the capacity of the Australian banking sector to absorb credit losses, are recovered from the ASRF model and compared with financial statistics and external credit ratings. With the implementation of Basel II preceding the time when the effect of the financial crisis of 2007-2009 was most acutely felt, the authors measure the impact of the crisis on the Australian banking sector.
Findings
Measurements from the ASRF model find general agreement with signals from macroeconomic indicators, financial statistics and external credit ratings. This leads to a favourable assessment of the ASRF model for the purposes of capital allocation, performance attribution and risk monitoring. The empirical analysis used in this paper reveals that the recent crisis imparted a mild stress on the Australian banking sector.
Research limitations/implications
Given the range of economic conditions, from mild contraction to moderate expansion, experienced in Australia since the implementation of Basel II, the authors cannot attest to the validity of the model specification of the IRB approach for its intended purpose of solvency assessment.
Originality/value
Access to internal bank data collected by the prudential regulator distinguishes this paper from other empirical studies on the IRB approach and financial crisis of 2007-2009. The authors are not the first to attempt to measure the effects of the recent crisis, but they believe that they are the first to do so using regulatory data.
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The financial crisis 2007‐2009 calls for a regulatory response. A crucial element of this task is the treatment of systemic risk. Basel III gains centre stage in this process…
Abstract
Purpose
The financial crisis 2007‐2009 calls for a regulatory response. A crucial element of this task is the treatment of systemic risk. Basel III gains centre stage in this process. Thus, the purpose of this paper is to evaluate Basel III, examining its ability to reduce systemic risk.
Design/methodology/approach
The paper highlights the importance of reducing systemic risk to achieve the goal of overall financial stability. By first focusing on the theoretical foundations of systemic risk, this paper explores and analyzes the crucial aspects of this almost impalpable risk type. It further investigates the current regulation of systemic risk, clearly showing Basel II's inability to reduce it. Then, it evaluates the Basel Committee's efforts to address these weaknesses through Basel III by investigating its incentives and its ability to reduce obvious drawbacks of Basel II as well as systemic risk factors.
Findings
The findings show that there are still adjustments necessary. Although the development of Basel III is well advanced, providing some stabilizing incentives, there are still issues calling for closer consideration to counter all Basel II drawbacks and systemic risk factors adequately. These include: a risk‐weighted leverage ratio; a more thorough treatment of procyclicality; adjustments for the NSFR (Net Stable Funding ratio); and most importantly, the mandatory issue to internalize negative externalities from financial institutions, that is, the call for pricing systemic risk.
Originality/value
The paper not only examines the new Basel III framework, as a response to the Financial Crisis 2007‐2009, but also draws attention to specific areas which the Basel Committee and regulators need to focus on more thoroughly.
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Krishan Boora and Kavita Jangra
The purpose of this paper is to explore the preparation level of Indian public sector banks for the implementation of Basel III. It is mandatory for public sector banks in India…
Abstract
Purpose
The purpose of this paper is to explore the preparation level of Indian public sector banks for the implementation of Basel III. It is mandatory for public sector banks in India to make adequate preparations to comply with the Basel III international regulations.
Design/methodology/approach
This study uses a modified questionnaire (Ernst & Young, 2013; AL-Tamimi et al., 2016) to examine the preparedness level of Indian public sector banks for implementing Basel III. Seven hypotheses are developed and tested.
Findings
The results show that Indian public sector banks are positively inclined toward Basel III, and the awareness level of Indian banks’ managers is adequate concerning Basel III. The banks have required resources for the proper implementation of Basel III, which is a prerequisite for its implementation. Banks know about the expected benefits that can be attained from implementing Basel III appropriately and banks are also aware of the high cost attached with Basel III. The capital adequacy ratio of public sector banks is above 11 percent, showing the banks’ readiness for Basel III.
Practical implications
The public sector banks need to concentrate on revising the existing policies to sharpen their risk management practices. Moreover, improving the level of education on Basel III is still required and the results also support the importance of advanced technology and trained human resources at all level as a basic requirement for the implementation of Basel III. It can be achieved by the support of government, Reserve Bank of India (RBI) and other concerned agencies. The enforcement of Basel III will also create various challenges for Indian public sector banks, in terms of declining profitability, increasing capital requirements and nonperforming assets. That is why the impact of Basel III norms on Indian public sector banks cannot be undervalued.
Originality/value
The findings would assist the Indian public sector banks to know about their preparedness level for Basel III and what are the necessary actions to encourage Basel III implementation process. The present study would be important for regulators and decision makers in banks, as the main purpose of this study is to increase their awareness of Basel III norms. The result would also help the regulators regarding the corrective measures that should be taken by RBI in order to motivate the banks for enforcing Basel III.
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