The global financial system created a void of financial regulatory reform and transformation. With the growth in housing defaults and the impact of the first sub loans and CDOS on the economy, the international community focused on form a United Front/banking regulation. Referred to as the Basel III agreement, the system was designed in 1988 by major central banks in the countries top 10. The first step in the Basle Accord, which laid down the requirement of liquidity and banking institutions to larger Nations. Suspended from the liquidation of a leading German Bank, the system was built to relieve the pressures of the weakness of a nationwide banking system. Establishing international banking organisations had to keep liquidità 8% compared to the total assets of the balance sheet, the reform has brought a significant change in Member 13 States that adopted it.
Basel II was the second round of regulatory reform on banking sector. In 2004, the agreement focuses on three main pillars of risk, including credit, operational, and market liquidity. Banks have been classified on the basis of capital ratios is Tier 1 and Tier 2 and their propensity to liquidity crunches as possible. Tier 1 capital is sometimes seen as the key measure of a bank’s health, defining the overall degree of activity has in the budget (i.e. money/possessions from earnings, common and preferred stock). Tier 2 capital focuses instead on assets which might include hybrid investment, sub ordered and provisioned debt overall.
The Basel III agreement has recently become a subject of debate, since it provides a new bar for reform and banking regulation. Spurn the recent credit crunch, Basel III will examine a series of fundamental measures to ensure the sustainability of the banking sector. These include:
Installation of a new measure of military control, it will be up the risk of a bank or hedge fund will be able to take
Credit risk limits. Organizations are limited to the amount of credit that you can borrow based on their activity. Will ensure that banks and other financials do not take too many risks.
The liquidity ratio. To alleviate the possibility of a credit crunch, companies will now need to pledge a credit section to guarantee loans or mobile cash or loan is not hindered.
Banks will have to have a 4.5 percent of the common equity by 2015. This level will be extended to 7% after that date.
The new Basel III agreement came under scrutiny by leading economists and industry analysts as being too restrictive. Economically, the debate about how much of an impact the new Basel reform will have both developed emerging markets is leading to a significant gap between companies and regulators.