Basel III and its Impact on the Eurozone Recovery
Basel 3: slowing the EU recovery?
Introduction:
In the wake of the 2008 financial crisis, questions were raised about the soundness of our financial systems and capital markets. In particular, concerns about “too big to fail” institutions (now termed as SIFIs, or systemically important financial system) and overleveraged balance sheets were raised.
The knee-jerk reaction of banks worldwide was thus a comprehensive re-evaluation of leverage ratios and current bank liquidities. Basel III, the international regulatory standard on banks was introduced by regulators under strong public pressure for more scrutiny on the institutions many blame for the crisis.
However, the incoming regulation has come under attack for slowing down the economic recovery from the financial crisis. The revision of the standard in January 2013 was no coincidence: the term ‘Basel Cliff’ had spooked markets worldwide in late 2012; there was even a rare solidarity amongst the American partisan divide against the regulation. Ultimately, when the rules were written down in 2010, the consensus amongst economists was that the global economy would be well on the way to recovery by now.
This article shall examine arguments that Basel III has slowed down the European Recovery.
Basel III: brief breakdown
The Basel accords are a set of banking supervision Accords issued by the Basel Committee on Banking Supervision, commonly known as the BCBS. The committee comprises of representatives from the central banks of major economies, including the G20 countries and banking powerhouses such as Hong Kong and Singapore.
Essentially, Basel III is the third recommendation published by the committee.
The regulatory boards of most countries, including the Federal Reserve and the European Banking Authority, have mandated that their banks keep to the standard. In light, however, of the nascent economic growth in both the US and Europe, the date of implementation of several standards were pushed
Introduction:
In the wake of the 2008 financial crisis, questions were raised about the soundness of our financial systems and capital markets. In particular, concerns about “too big to fail” institutions (now termed as SIFIs, or systemically important financial system) and overleveraged balance sheets were raised.
The knee-jerk reaction of banks worldwide was thus a comprehensive re-evaluation of leverage ratios and current bank liquidities. Basel III, the international regulatory standard on banks was introduced by regulators under strong public pressure for more scrutiny on the institutions many blame for the crisis.
However, the incoming regulation has come under attack for slowing down the economic recovery from the financial crisis. The revision of the standard in January 2013 was no coincidence: the term ‘Basel Cliff’ had spooked markets worldwide in late 2012; there was even a rare solidarity amongst the American partisan divide against the regulation. Ultimately, when the rules were written down in 2010, the consensus amongst economists was that the global economy would be well on the way to recovery by now.
This article shall examine arguments that Basel III has slowed down the European Recovery.
Basel III: brief breakdown
The Basel accords are a set of banking supervision Accords issued by the Basel Committee on Banking Supervision, commonly known as the BCBS. The committee comprises of representatives from the central banks of major economies, including the G20 countries and banking powerhouses such as Hong Kong and Singapore.
Essentially, Basel III is the third recommendation published by the committee.
The regulatory boards of most countries, including the Federal Reserve and the European Banking Authority, have mandated that their banks keep to the standard. In light, however, of the nascent economic growth in both the US and Europe, the date of implementation of several standards were pushed