Supervision of Financial Institutions Revisited: The Transition From Basel I to Basel III. A Critical Appraisal of the Newly Established Regulatory Framework in Response to the Credit Crunch

Abstract

In order to address the weaknesses of the financial system revealed by the recent financial crisis, Basel Committee introduced a series of changes in the international regulatory framework. Basel III is a set of proposed modifications to international rules on capital adequacy and liquidity of banks as well as any other issues relating to banking supervision. This paper is an attempt to identify the provisions of Basel III rules, applicable since 2013 and gradually to a depth of six years. This is probably the most significant initiative of the Commission following the recent credit crunch. In particular, a thorough reference is made to the factors affecting capital adequacy and other regulations of the financial system, as set by the supervising authorities, and also to matters of compliance of all involved institutions. The aim of this paper is to provide a critical evaluation of the new regulatory framework, known as Basel III, with emphasis on the new capital adequacy factors and shed light on its impact on global banking system.

Keywords: Basel Committee, Financial Crisis, Regulation, Capital Adequacy, Liquidity, Bank

JEL Classification: G38