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Financial Services - Essay Example
Finance & Accounting
Pages 12 (3012 words)
The paper appraises whether the imposition of the Basel III standards for capital adequacy as well as liquidity obligations of bank will be sufficient to prevent a further financial calamity in future. The capital adequacy limits are anticipated to decrease the insolvency perils of the banks…
The paper tells that various regulatory bodies have recognised that the prevalent strategies of capital regulations of the banks in the United States as well as the European Union, on the basis of the Basel I and the Basel II Accords as a major reason contributing to the 2008 financial disaster. This can be substantiated from the fact that under the prevalent capital adequacy policies prior to the financial crisis, the least regulatory capital obligations of banks were inadequate. The low capital obligations imposed on the banks as per the Basel II in addition to certain standards linked to the Basel I were deficient in the context of the elevated exposures and real tangible losses endured by the banking entities during the economic downturn. It was also stated that the quality of the capital maintained by the banks as per regulations were time and again found to be inadequate in absorbing the losses sustained by the banks during the economic crisis successfully. The capital adequacy policies set as per the standards of the Basel II along with that of the Basel I, did not sufficiently detain the risks that were caused by bank exposures to certain dealings. The transactions or dealings that increased the exposures of the banks that the regulatory standards failed to capture were securitisations, repurchase agreements and derivatives. The regulatory policies of Basel I and Basel II also failed to effectively take into account the systemic risks related to the upsurge of leverage in the fiscal and monetary system. ...
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