The Framework Resulting From The Basel Iii Regulations

The banking sector is under prudential regulations set internationally by the Basel Committee, in order to ensure its strength, stability and mitigate competitive inequities. Its founding principle is based on a minimum solvency ratio introduced in 1988 in the form of the Cooke ratio, resulting in a harmonization of the rules of banking supervision governing the level of own funds. Basel II was introduced after the various financial crises of the 1990s (the Mexican crisis of 1994, the Asian crisis, and the Brazilian and Argentinean crisis). Despite a series of reforms, Basel II has quickly shown its limitations with the 2007 crisis that has strongly impacted the financial markets and the world economy generally. In this context, the Basel Committee has developed within Basel III a number of requirements which aim at strengthening the resilience of the banking institutions and financial system. These adjustments will be applied to the three pillars already in place and relate to capital, liquidity and systemic risks. The new Basel provisions relating to the calculation of the numerator of the solvency ratio are declined according to the triptych: strengthening the quality of prudential eligible own funds instruments, increase of the statutory deductions provided by Basel II, and higher minimum thresholds of solvency ratios. Furthermore, a limitation of the lever, calculated from the balance sheet and elements of off-balance sheet based on non-weighted by the risks, will be introduced. The Basel III criteria entering into force between 2013 and 2018 constitute one of the major challenges to which the banking sector will face. The real impact of the Basel III reform will depend on the attitude of the banks that will have to change in their strategy, their cost structure and policy of remuneration of the shareholders. A reform which will have therefore an impact on the world economy ensuring as estimated by Governors and supervisors, stability and long term economic performance. This paper will present the main adjustments proposed by the Basel Committee.