Basel III and Risk Management in Banking
17 Pages Posted: 16 May 2012
Date Written: May 16, 2012
This paper limits itself to the examination of the necessity of Basel III and its abilities in bringing about prudent risk management among banks and other financial institutions. The paper gives an overview of the Basel III framework and its efforts towards improving risk management initiatives. The paper further examines the role of Basel III accord in controlling liquidity risk exposures, and analyses the strengths and shortcomings of the system. Lastly, it concludes by giving a recommendation regarding the necessity of Basel III in bringing prudent risk management in the banking industry. The Basel III agreement does provide strategies for increasing the quantity and quality of capital among banking institutions. The framework is also fundamental in bringing stabilities in the financial system. However, failures in proposing measures against account manipulation, corporate governance, roles of credit rating agencies and strategies for monitoring the financial system limits the efficacy of Basel III in bringing prudency in risk management; despite these factors having contributed to the events attendant to the financial crisis. While the paper acknowledges achievements of the Basel III framework, findings from the analysis shows that there are still some concerns, which must be addressed in order to bring prudency in risk management behaviors of banks. The paper concludes by offering possible recommendations to strengthen the policy framework of Basel III.
Keywords: Basel III, risk management, banking supervision, financial crisis, leverage, liquidity, systemic risk, moral hazard
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