Banks have been regulated since the 1988 based on the Basel I capital accord. The 1988 accord followed a rules based one-size-fits-all approach to regulation of the capital adequacy of banks.
To address the deficiencies in the 1988 Basel Accord, Basel II was implemented. Basel II is a more risk based approach to the regulation of banks. Under the Basel II accord the banks can determine their capital adequacy ratio based on their own internal risk based model or on the credit ratings of rating agencies (Mostert,2003).
The key issues were whether the new Basel II accord will be adequate in the face of a global financial meltdown.
The recent global crises highlighted various issues in terms of the prudent regulation and supervision of banks. Some of these issues include the issues banks that is deemed of too-big-to-fail, moral hazard and the role of regulators in preventing these kind of concerns.
The Basel Committee on Bank Supervision has indeed proposed new rules for the capital adequacy of banks after the crises (BIS, 2011).
Some of the issues that will be dealt with is the impact of the new proposals on the cost and availability of credit, the impact on macro prudential regulation and supervision and the possible impact of the Basel III proposals to prevent a similar banking crises from happening again (Angelini et al., 2011).
The paper will deal with a critical evaluation of the Basel III proposal and make some suggestions on the way forward in terms of the review of the regulation of banks.
The paper will be based on a literature review.
Bibliography
Angelini, P and Clerc, L and Curdia, V and Gambacorta, L and Gerali, A and Locamo, A and Motto, R. and Roeger, W and Van den Heuvel, S and Vlcek, J. 2011. BASEL III: Long-term impact on economic performance and fluctuations. Working Paper 338. Basel: Bank for International Settlements
Mostert, JW. 2003. Issues relating to the regulation of banks. Unpublished PhD dissertation. Bloemfontein: University of the Free State
BIS, 2011. Press Release Group of Governors and Heads of Supervision announces Higher Global Minimum Capital Standards. Basel: Bank for International Settlements