Impact and Implementation Challenges of the Basel Framework for Emerging, Developing and Small Economies

Frait, Jan; Tomšík, Vladimír

doi:10.1007/978-1-137-56905-9_13

Cited by 3 publications

(4 citation statements)

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“…Moreover, banks in many developing countries often hold more capital than the regulatory minima because of the volatility of their operating environment and/or the nature of their business environment. Banks in many developing countries are likely to be well positioned to meet the specific capital quality requirements of Basel III because their capital base is typically dominated by common shares and retained earnings (Frait and Vladimir 2014).…”

Section: Adjustment Costsmentioning

confidence: 99%

“…This is due to dependence on wholesale funding and high loan-to-deposit ratios, as well as low levels of government securities in asset portfolios. In some countries banks may find it difficult to meet the Liquidity Coverage Ratio (LCR) because they lack access to a sufficiently diversified portfolio of high quality liquid assets (Basel Committee on Banking Supervision 2014, Frait andVladimir 2014). In South Africa for instance, the supply of government bonds domestically is expected to be insufficient to meet the expected demand from South African banks, while the ratings of most corporate bonds is below the minimum required for them to qualify as high-quality under Basel III (FSB 2012).…”

Section: Adjustment Costsmentioning

confidence: 99%

“…Given the challenges of implementing internal models, it is perhaps not surprising that these are the components of Basel II implemented least frequently. Several experts argue that full implementation of Pillar 2 (which aims at strengthening supervision) is a prerequisite for the use of internal-model based approaches (Powell 2004, Frait andVladimir 2014). Regulators appear to be following this advice.…”

Section: Specific Capacity Challengesmentioning

confidence: 99%

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The Limits of Globalizing Basel Banking Standards

Jones¹,

Zeitz²

2017

Journal of Financial Regulation

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Though designed by a selective group of regulators from the world's largest financial centres, Basel banking standards are being implemented far beyond the financial core, and this is often seen as confirmation of their global relevance. Yet we show that the implementation of Basel II and III is shallow and highly selective in most countries outside of the Basel Committee.Drawing on the available evidence and regression analysis, we attribute shallow and highly selective adoption to the sheer complexity of the standards, and the fact that they need substantial modification before they can be fully implemented, particularly in developing countries. Implementation challenges are compounded by gaps in the financial market infrastructure, notably credit rating agencies, as well as shallow capital markets. Beyond this, we attribute cross-country variation in implementation to differences in the underlying political economy of the banking sector. Countries are likely to pursue relatively high levels of Basel II and III implementation when large foreign and internationally active domestic banks operate in their jurisdiction and when they have a market-oriented approach to the financial sector. Conversely countries are likely to pursue relatively low levels of implementation when they have few internationally active banks and a more interventionist approach.

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Section: Adjustment Costsmentioning

confidence: 99%

Section: Adjustment Costsmentioning

confidence: 99%

Section: Specific Capacity Challengesmentioning

confidence: 99%

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The Limits of Globalizing Basel Banking Standards

Jones¹,

Zeitz²

2017

Journal of Financial Regulation

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“…Stock markets in many LMICs are not deep and liquid enough for investors to exert the kind of market discipline that is envisioned in Pillar III of Basel standards. Meanwhile the supply of high‐quality liquid assets in many LMICs may not be sufficient for banks to meet the liquidity requirements of Basel III (Frait and Tomšík, ; Gobat et al., ).…”

Section: Challenges Arising From Two‐tier Decision‐makingmentioning

confidence: 99%

Global Financial Regulation: Shortcomings and Reform Options

Jones

Knaack

2019

Global Policy

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Standard‐setting bodies in global finance follow a core‐periphery logic, imposing a rigid dichotomy between standard‐setters and standard‐takers. They also focus exclusively on promoting financial stability. We argue that both attributes are increasingly problematic in today's world of globalised finance. Developing countries outside of standard‐setting bodies are highly integrated into global finance and while they are not systemically important, they are greatly affected by the regulatory decisions taken in the core. Analysing Basel banking standards, we show how the two‐tier structure of decision‐making results in international standards that generate adverse implications for countries in the periphery, particularly developing countries. Focusing on debates over the regulation of non‐bank credit intermediation, we show how the exclusive focus on financial stability can operate to the detriment of other important policy objectives, including financial inclusion. To improve the efficacy of international standard setting we make a series of recommendations aimed at increasing the applicability of standards to a wide variety of jurisdictions, and widening the focus of standard‐setting beyond financial stability. We also propose the creation of a new standard‐setting body for the regulation of fintech that models a more inclusive and holistic approach.

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Liquidity regulations and bank behavior: An emerging markets perspective

Mashamba

2021

JGR

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The 2007 to 2009 global financial crisis significantly affected the funding structures of banks, especially internationally active ones (Gambacorta, Schiaffi, & Van Rixtel, 2017). This paper examines the impact of liquidity regulations, in particular, the liquidity coverage ratio (LCR), on funding structures of commercial banks operating in emerging markets over the period 2011 to 2016. Similar to Behn, Daminato, and Salleo (2019) who developed a dynamic partial equilibrium model to examine capital and liquidity adjustments, this paper develops three dynamic error component adjustment models and estimates them using the two-step system generalized method of moments (GMM) estimator to analyze funding adjustments adopted by banks in emerging markets in response to the LCR requirement. The results revealed that banks in emerging markets responded to binding liquidity regulations by increasing deposit, equity as well as long-term funding. In terms of the magnitude of response, deposit funding was found to be more responsive to the LCR rule while the elasticity of equity and long-term funding to the LCR specification was found to be weak. The weak response of equity and long-term funding to liquidity standards was attributed to low levels of capital market development in emerging markets (Bonner, van Lelyveld, & Zymek, 2015). By and large, the results suggest that Basel III liquidity regulations have been effective in persuading banks in emerging market economies to fund their business activities with stable funding instruments. Based on this evidence, the study supports the adoption of Basel III liquidity regulations in emerging markets. Moreover, policymakers in emerging market economies should monitor competition for retail deposits to safeguard the benefits of the LCR rule and pay more attention to developing capital markets.

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Impact and Implementation Challenges of the Basel Framework for Emerging, Developing and Small Economies

Cited by 3 publications

References 0 publications

The Limits of Globalizing Basel Banking Standards

The Limits of Globalizing Basel Banking Standards

Global Financial Regulation: Shortcomings and Reform Options

Liquidity regulations and bank behavior: An emerging markets perspective

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