The Role of Basel III Regulations in Banking Sector Resilience

Abstract

This paper analyzed how the Basel 3 proposal to regulate the banking system resilience was influenced by the effects of the three regimes in regard to the capital adequacy regime, liquidity regulation regime, and risk assessment regime.  The review indicates that the greater intensity of the capital strength propositions, specifically the Common Equity Tier 1 (CET1) ratio and the leverage ratios are the main reasons that the new Basel III is significantly increasing the financial stability of the financial institutions.  The Net Stable Funding Ratio (NSFR) and Liquidity Coverage Ratio (LCR) have also enhanced the capacity of banks to withstand financial crisis that are liquidity-related thus inducing stability in the financial arena.  What the findings indicate is that banks that adhered to such recommendations were less affected by economic shocks particularly the COVID-19 epidemic and subsequent economic pressures.  In this article, the author also argues that various jurisdictions modified Basel III by varying the timetable and standard as it best suits them.  Even though there may be challenges associated with the identification of a consistent approach to the application of the requirements in a global context, the general findings indicate that the introduction of Basel III helps the cross-industry to manage liquidity and risks more substantially.