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Impact and Implementation Challenges of the Basel Framework for Emerging, Developing and Small Economies

  • Jan Frait
  • Vladimír Tomšík

Abstract

In response to the global financial crisis, the Basel Committee on Banking Supervision (BCBS) introduced two sets of reforms to the international capital framework for banks. The ‘Basel 2.5’ package of reforms (BCBS, 2009) included measures to strengthen the trading book capital requirements under Basel II and enhance the three pillars of the Basel II framework. Basel III (BCBS, 2010b) introduced two additional capital buffers: a capital conservation buffer of 2.5% that should be applied across the board, and a countercyclical buffer, which should be applied during periods of high credit growth. In addition to the level of capital, Basel III addresses the issue of its quality through its focus on common equity. Capital loss absorption is dealt with by the point of non-viability clause that provides relevant authorities with discretion for a write-off or conversion to common shares if the bank is judged to be non-viable. The capital framework was also supplemented by a non-risk-based leverage ratio. There is also substantial strengthening of the counterparty credit risk framework. Most of Basel III relates to Pillar 1 measures (minimum capital requirements), but there are also implications for Pillar 2 (further requirements by supervisor related to risks not covered by Pillar 1) and Pillar 3 (set of disclosure requirements). Basel III also introduced two required liquidity ratios: the liquidity coverage ratio (LCR) and the net stable funding ratio (NSFR).

Keywords

International Financial Reporting Standard Sovereign Debt Banking Supervision European Banking Authority Basel Committee 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.

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Copyright information

© Jan Frait and Vladimír Tomšík 2016

Authors and Affiliations

  • Jan Frait
    • 1
    • 2
  • Vladimír Tomšík
    • 2
    • 3
  1. 1.University of Finance and AdministrationPragueCzech Republic
  2. 2.Czech National BankPragueCzech Republic
  3. 3.Newton CollegeBrnoCzech Republic

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