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International Banking Law and Capital Markets - Assignment Example

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Basel III No: University: Date: Basel III has already faced considerable criticism. Two of the main criticisms are that it is overly complex (proposed four layers of capital) and that the capital requirements therein are unrealistic…
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International Banking Law and Capital Markets
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Download file to see previous pages There is a need to develop more stringent standards for the banks to address the deficiencies that come on the surface in the financial crises of late 2000. The introduction of Basel-111 aims at to strengthen the capital requirements of the bank and the regulatory requirement of bank liquidity and bank leverage. In Basel II, the risk management was out sourced to third party. The Ratings of financial instruments were conducted by the outsource agencies Fitch ibca, moody and poor and standard without intervention of official agencies. The AAA ratings on mortgage backed securities, credit default swaps and other instruments in practice evidencing extremely bad credit risks. The implementation of Basel III surely will decrease annual GDP growth to the extent of 0.05 to 0.15 percentages. It is responsibility of the directors of the company to keep an eye on market liquidity condition that enables them to hold major assets for the accountability of material losses2. Requirement of Basel III The Basel III primarily addresses and focuses on the liquidity risk, capital adequacy ratios and stress testing. It requires banks to follow the requirement of Basel III and to compute the liquidity and leverage ratios accordingly. Therefore, the banks are to keep themselves align with the new requirement in order to integrate all relevant data to develop a new approach of data analysis and modeling. Basel III demands sufficient transparency and zero rated documentation ever than before to ensure that the deployment of funds would bear fruits3. Banks must ensure creation of new models that ensure compliance of Basel III requirement. It is a matter of fact that most of the institutions are reluctant to implement it in its true spirit due to reasons best known to them. However, they have no other option but to implement it in order to avoid penalty from compliance and monitoring watch dogs. In other words, compliance of Basel III requirement is mandatory and not optional. Keeping in mind the necessity, the banks are developing infrastructure and models for the banks to make best use of its capacity to pin point and respond to the profit making opportunities4. According to Simon Nixon, “no one disputes the broad thrust of Basel III, that banks should hold much higher levels of higher-quality capital. Indeed, all major European banks have well-developed plans to meet the new rules ahead of time.”5 It is a matter of fact that in today’s world each and every organization including banks heavily relies upon latest technology to meet the requirement of customer satisfaction besides regulatory compliance by the banks. The more efficient business decision making are based on the reliability of their quality data. Any bank who successfully receives the data through reliable domestic sources within the bank to position its data warehouse on sound footings coupled with technology infrastructure stands to deliver the goods efficiently in terms of compliance and better business6. “Basel III tightened up the rules on what could be counted as core capital, increased the risk-weights that determined how much capital a bank should hold against a particular exposure and finally introduced a tough new minimum ratio of core capital to risk-weighted assets, set at 7% for small banks and rising to 9.5% for the largest banks deemed ...Download file to see next pagesRead More
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