Was Basel III Necessary and Will it Bring About Prudent Risk Management in Banking?

Bank of Ghana Working Paper No. 2011/01

19 Pages Posted: 26 Feb 2011 Last revised: 3 Mar 2011

Date Written: February 25, 2011

Abstract

This paper assesses whether Basel III was necessary and would be able to bring about prudent risk behaviour among banks. Basel III aimed at setting new global standards to address both firm specific and general systemic risks by raising the quality of capital to position banks to better absorb losses on going concern basis, monitor leverage and also improve banks liquidity. However, it did not fully address many of the factors that were responsible for the global financial crisis and the fundamental problems identified with Basel I and Basel II.

The risk weighting system suffers from the assumption of portfolio invariance and has not been refined. Basel III did not address the over reliance on external rating agencies in the capital framework and also the ethical issues such as corporate governance, account manipulation and full disclosures. The issue of reliance on market disclosure to aid the market in the assessment of quality of capital across institutions has also not been resolved.

Keywords: Basel III, Risk Weighted Assets, Corporate Governance, Risk Management

JEL Classification: G21, G28, G38

Suggested Citation

Amediku, Settor Kwabla, Was Basel III Necessary and Will it Bring About Prudent Risk Management in Banking? (February 25, 2011). Bank of Ghana Working Paper No. 2011/01. Available at SSRN: https://ssrn.com/abstract=1769822 or http://dx.doi.org/10.2139/ssrn.1769822

Settor Kwabla Amediku (Contact Author)

Bank of Ghana ( email )

1st Thorpe Road
Accra
Ghana
233302665252 (Phone)

HOME PAGE: http://www.bog.gov.gh

SMC University ( email )

Balz Zimmermannstrasse 7
Transknowlogy Campus
Zuerich, CH-8302
Switzerland

HOME PAGE: http://www.smcuniversity.com

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