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Basel III contain set of reforms that were developed by the Basel Committee created for banking supervision so as to strengthen supervision, regulation, and management of risk in the banking sector (Angelini, 2011). Basel 3 aims to discover the ability of the banking sector to absorb shock that is experienced from economic and financial stress and improve governance and risk management. In addition, the reform measures aim to strengthen the bank's disclosures and transparency. These reforms targeted the micro-prudential or rather bank level regulation that is entrusted with raising the resilience of personal banking institutions to stress periods. In addition, Basel 3 targets the micro-prudential institution risk that can be experienced across the banking sector and amplification of those risks over time. Basel 3 analyzes it objectives into three essential parts that include capital reform, liquidity reform and other elements that are related to the financial system. The capital reforms include quantity and quality of capital, leverage ratio, the introduction of buffers for a capital observation, complete risk coverage and a counter-cyclical capital buffer. The liquidity reforms include the long (Net Stable Funding ratio) and short-term (Liquidity Coverage ratio) ratios. The independent Commission on Banking, on the other hand, came out with a final report that contained their recommendation on the reforms to promote competition and stability in the banking sector in the United Kingdom.
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From the research it can be comprehended that the banking reform in UK should make sure that there should be adequate protection of hard-earned money of consumers and there should be a fool-proof system should be in existence where no taxpayer money will be used to bail out the failed banks at least in the near future.
Basel I was criticized for being inadequate in its assessment of assets to risk categories because assets with different risk composition would be categorized into the same risk groups. A primary issue of the Basel II accords was the practice of securitization were banks combined risky loan assets into asset-backed securities and sold the securities to investors.
The series of financial collapse led by the Lehman Brothers caused credit markets to cease functioning while capital flows effectively ground to a halt. A year later, the majority of world economies would be in recession and the global growth was collectively stunted, continuing way until.
However, in the changing market scenario, the exposure of these financial institutions to risk has increased and several institutions collapsed during global economic crisis. Collapse of banking sector during financial crisis in South East Asia in 1997 is a best example in this context.
Banking Regulation and Risk. The 2008 financial crisis that started in the United States and immediately spilled over to many economies across the globe highlighted several problems that need to be addressed in the current financial system in order to prevent the same catastrophe from happening again.
On the other hand, it is argued that financial market regulation imposes significant costs to an economy that outweighs the benefits (Benston, 1998).It has been argued that the inappropriate regulatory measures combined with many other factors have resulted in the recent economic crisis
The Federal Banking Supervisory Office of West Germany cancelled the banking license of Bankhaus Herstatt when they discovered that the bank had foreign exchange exposures that were three times to its capital. Due to this act of the central bank, many banks had to suffer huge losses on their pending trades with Herstatt triggering a cascading effect in the banking sector.
The discussion focuses on ring fencing of retail banking from investment banking in the United Kingdom while in countries such as Germany and France, hybridization of ring fencing and proprietary trading has been
The services provided by the banking sector are supportive in the allocation of capital and production of goods. Each of these services is essential to the well functioning of the economy. These financial services are timeless.
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