Implementation of Basel Norms in Developing Countries - Evidence from Jordan - Essay Example

Data related to capital adequacy ratio have been obtained from ‘DataStream’. For the purpose of analysis, the following banks have been taken. They are Arab Bank, Jordan Islamic Bank, Jordan Kuwait Bank, Jordan Commercial Bank, The Housing Bank for Trade & Finance, Jordan Dubai Islamic Bank, Union Bank, Arab Banking Corporation (Jordan), Invest Bank, Capital Bank of Jordan, Societe Generale De Banque- Jordanie, Cairo Amman Bank, Bank of Jordan, Arab Jordan Investment Bank and Jordan National Bank.

Data related to three financial years 2006, 2007 and 2008 have been analyzed for the purpose of research. In addition, data of 2009 was considered while analyzing Capital Adequacy Ratio. Line charts have been used to analyze the trend over the three years period. The mean and the variance of the values have also been calculated to identify the deviation of the average from the actual figures. By the end of the last century, the significance of setting up roles and establishing new philosophy of capital in the field of the global banking system was recognized.

In the year 1999, McDonough, the chief of the American central bank, said that the pressure on banking systems has increased which has confirmed the need to take on a new definition of capital. In the year 2005, the Board of Governors identified the risk inherent not only in the capital structure but also in its appropriate measurement, the managerial practices, and the capability of the Board of Directors to frame policies by taking into consideration the risk specifications (Barakat, 2009). The positive aspects of Basel II capital regulation are manifold.

These include improved risk sensitivity and flexibility; the rising significance attached to risk mitigation techniques, increased focus on supervisory review and market discipline. These are steps taken forward towards the establishment of a framework that aims to enhance modern and global banking regulations. In the wake of severe financial market conditions, Base II’s inherent weaknesses were visible enough to compel the international regulators to revisit many of its aspects with more caution and awareness of the present market scenario.