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The Current Financial Crisis: Causes and Policy Issues - Essay Example
Author : kirlinrigoberto
Finance & Accounting
Pages 14 (3514 words)
Financial Services Coursework Name Institution Instructor Course Date a). The proposals made about capital ratios of banks by Basel III committee have increased a minimum capital requirement for banks from 2% to 4.5% of risk-waited assets. These changes are meant to assist a bank to have a higher liquidity levels which will help to compact financial like the one experienced in 2007/2008 where the banks collapsed leaving the whole world with a crisis that has never been witnessed before…
This new regulatory standards about capital adequacy of banks has been hailed as requirements that are likely to strengthen bank capital and liquidity thus helping banks to have leverage. However the GDP needs to be considered as an agent and necessary consideration when setting the banks liquidity levels. Basel III has given three tiers which are to be considered by the bank before being accepted as fulfilled the requirement. According to the committee , in order to have a consistent ,transparent and quality capital there is need to have tier one consisting of shareholders equity, tier two consisting of instruments like derivatives and bonds. The committee also introduced risk coverage framework where they required a proper credit and market risk management. It required that credit should be valued adjusting for risk. It also required that banks should strengthen credit exposure risks by raising capital buffers. The committee has given dates when these requirements should be implemented by banks. In 2011 banks are required to come up with strategies of monitoring liquidity ratios of the banks as well as develop a supervisory framework which will ensure that leverage is maintained. ...
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