Implications of the New Basel Capital Accord for European Banks


Finance

Implications of the New Basel Capital Accord for European Banks

Jméno a příjmení autora:

Petr Teplý, Liběna Černohorská, Karel Diviš

Rok:
2007
Číslo:
2
Klíčová slova:
New Basel Capital Accord, capital adequacy, banks, bank regulation
DOI (& full text):
Anotace:
On January 1, 2007 the New Basel Capital Accord (Basel II), which will influence many financial institutions around the world, came into force. Czech banks and investment firms will be affected as…více
On January 1, 2007 the New Basel Capital Accord (Basel II), which will influence many financial
institutions around the world, came into force. Czech banks and investment firms will be affected
as well, because the European Union (EU) has accepted these new regulatory rules with a few
minor exceptions. The aim of this paper is to provide the historical background, key features, and
impacts of Basel II on economic subjects.
The overall objective of Basel II is to increase the safety and soundness of the international
financial system. Basel II is based upon three main pillars: Pillar I deals with the minimum capital
requirements for credit, market, and operational risk, Pillar II focuses on the supervisory review
process and finally Pillar III promotes market discipline through enhanced disclosure requirements
for banks. The new accord is expected to have three main economic consequences: higher cyclical
fluctuations, an increased level of investments, and higher economies of scale. However, there
have been numerous criticisms concerning Basel II. These encompass four principal elements:
higher procyclity, an excessive use of external ratings, an excessive prescription of the Basel II document,
and finally the difficulty to quantify operational risk. In terms of quantitative results of Basel
II, an additional small rise of Gross Domestic Product in the European Union is anticipated.
Sekce:
Finance

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