It is common knowledge that the interconnectedness of global financial system carries immense systematic risk that can hinder economic and financial welfare of a global citizen, regardless of its demographic location.Since banks ‘… Provide the oil that lubricates the wheels of commerce… ‘, it is imperative that they have sufficient resources to withstand economic downturns (All 2009, p.3).
This may be the underlying reason why the Basel Committee on Banking Supervision regulates commercial banks of the world and treat them on consolidated basis (Vine and Phillips 2012).
Additionally, the committee has proposed new capital adequacy tankard, namely Basel Ill, to compensate for the shortcomings of Basel II. The following are the two interrelated factors that may have led the committee to consider a move from Basel II to Basel Ill. It can be argued that the global financial crisis (SGF) shook the foundation that the global economy was built upon. PAR (2012, p. 3) indicated that the primary reason behind the cause of SGF was disproportionate amount of leverage and ‘… Gradual erosion of level and quality of capital base… ‘ that the banking sectors had accumulated.
During the onset of SGF, the holdings of the banks were insufficient to over their losses leaving some of them insolvent. Despite the popular belief, PAR (2012) explicitly claims that ‘Australia was not immune from these impacts’. It is in fact true that Australian banks didn’t take on the similar banking activities on a big scale that the US banks undertook, the point still remains that the global economy is interconnected and the lack of consistency, resilience and transparency in international banking system can cause more cataclysmic crisis’ (Deed 2011).
This may be why the PAR, in compliance with Basel Committee on Banking Supervision has insider a move to Basel Ill with an attempt to minimize or eliminate the impact financial crisis’ having on banks. Despite its full introduction in 2008, Basel II has been guiding investment decisions amongst international banks since its publication in 2004 (All 2009). All (2009) claims that regulatory framework of Basel II was the core cause of SGF and thus, Basel II was the catalyst that allowed the banks to take on excessive leverage.
According to All (2009, p. 7), the quantitative Impact research (CIA) conducted by the Basel Committee shows that big financial organizations were bled to increase their capital for profitable use as they experienced capital reduction by using the ‘Advanced internal rating-based approach’ and their smaller competitors experienced an increase in capital requirements by using standardized approach to calculating capital adequacy.
The Committee on Global Financial System (2012) have supported All’s claim as they are currently working towards improvement of measures used to provide a fair and equitable approach to capital adequacy measurements. Therefore, indicating that the impacts of SGF on the global economy s the only factor that led to move from Basel II to Basel Ill does not paint the whole picture as the shortcomings of Basel II has led the unsustainable economic behavior of international commercial banks that gives light to the question – why the SGF happened to begin with. . 2. Basel Ill (650 words) Follow this margin and Justify paragraph 2. 3. Implications of Basel Ill (rewords) Please send me the links/PDF file of all sources used for reference list. Make sure to cite tables used Examples of cross referencing The prudent banking system in Australia was previously noted (Section 2. 1 . 1).