What are the implications for the banks as a result of this new regulation?
There are numerous implications fronted by Basel III since its establishment, ratification, and embracement in the financial sectors. This is a critical provision when considered comprehensively in regard to financial control. As stipulated by the Basel Committee on Banking Supervision (BCBS), Basel III intends to solidify worldwide capital as well as liquidity regulations in the financial realms.
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This is a critical implication of Basel III in the context of global financial regulations. It is important to understand these provisions in respect to financial insinuations. Additionally, Basel III intends to streamline the banking sector so as to attain the resiliency and conformity required (Gregoriou 2009, p. 50).
This is a critical necessity especially in the international context. Following the internationalization of various financial factors, transaction provisions, and exchange rates, it is important to agree that Basel III will enhance financial provisions of the banking sector as indicated earlier.
The proposed changes (as preferred by Basel III) in the financial sector will ensure coherency, efficiency, and other fiscal provisions as supported earlier. This is a vital implication fronted by Basel III upon its full implementation.
Additionally, Basel III will imply that all financial institutions must establish, ratify, and embrace some sense of dynamism, autonomy, and complexity so as to comply with the international financial provisions and regulations.
This is intended to enhance global financial regulatory landscape despite the looming challenges. Another implication of Basel III (based on its stringent regulations) is that weaker and poorly established banks and other financial institutions will find it hard to survive in the industry (Eubanks 2011, p. 32).
This will be caused by the stringent regulatory scrutiny imposed by the Basel III. Similarly, it will be difficult for such organizations to raise the required capital or access the required funding in order to establish and run emerging financial institutions/banks.
Concurrently, Basel III will have a considerable implication on the profitability and ROE of numerous financial institutions. This is a remarkable implication emerging from hiked capital requirements, tough regulatory reforms, and increased costs of funding.
It is crucial to reflect on such provisions when considering viable business models and other financial implications in regard to Basel III. Basel III will exert extreme pressures on margins as well as operating capacity of various financial institutions globally (Wittenbrink 2011, p. 45). Additionally, investor returns might diminish due to financial implications fronted by Basel III indicated earlier.
Another considerable implication is that financial institutions might opt for long-term funding rather than short-term ones based on the stringent regulations set by Basel III. This considers attainable margins and pricing provisions offered by other major financial organizations.
Another probable implication in this context is the enhanced focus on the proprietary trading. There will be reorganization in the legal frameworks used to govern various financial aspects globally. It is crucial to understand these provisions based on their significance and other relevant considerations.
Financially, it is important to agree that Basel III will help in reducing risks on individual banks as well as limited interconnectivity amidst institutions. Precisely, Basel III will ensure minimized risks in the systemic banking provisions.
Additionally, another implication of Basel III is the contracted/minimized lending capacity among the concerned stakeholders. Evidently, regulations set by Basel III will hardly grant lending capabilities. Additionally, investors will hardly recommend bank debts and equity. Conclusively, it is possible to attain international arbitrage.
List of References
Eubanks, W 2011, Status of the Basel III Capital Adequacy Accord, DIANE Publishing, New York, NY.
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Gregoriou, G 2009, Operational risk toward Basel III: Best practices and issues in modeling, management and regulation, Wiley, Hoboken, NJ.
Wittenbrink, A 2011, Financial regulation through new liquidity standards and implications for institutional banks: Basel III, GRIN Verlag, London, UK.