Research about basel iii
Due to the economic crisis which occurred in 2008, a new set of regulations for banks was created; it is called Basel 3. The aim of these regulations is to strengthen common equity of banks. For that purpose, certain modifications and enrichments were brought to Basel 2.
The two main modifications was on one side, the redefinition of the Tier 1 (common equity) ratio; indeed, banks must hold 4.5% by January 2015, then further 2.5%, totalling 7% and on the other hand, the risk coverage of the capital framework will be strengthened especially to fight against credit risk exposures arising from derivatives and securities financing activities.
Moreover, new ratios were introduced. So, a leverage ratio and a global minimum liquidity standard , particularly for internationally active banks, appeared. The aim of the leverage ratio is to help contain the build-up of excessive leverage in the banking system, and introduce additional safeguards against model risk and measurement error ( it will be effective in 2015). And the global minimum liquidity standard includes a 30-day liquidity coverage ratio requirement underpinned by a longer-term structural liquidity ratio.
A new concept of countercyclical buffers complete these regulations. In fact, countercyclical buffers have to be constituted in good times in order to be able to face in periods of stress of the economy. Since 1st January 2016, it will be 0,625% of common equity then further 2.5% in January 2019.
We have to remind that Basel 3 also concerns insurance companies. Indeed, the directive Solvency 2, which is set of regulatory requirements for insurance firms that operate in the European Union, has for objective to harmonize the rules of solvency of insurance companies. These new prudent rules will impose to the insurers the consideration, from 2012, of all kind of risks to whom they are exposed, and better one allowance of stockholders' equity according to these risks.
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