03 June 2014, 2nd Economics & Finance Conference, Vienna
ISBN 978-80-87927-01-4, IISES
Max Kubat
University of Economics, Prague, Czech Republic, max.kubat@centrum.cz
DOES BASEL III BRING ANYTHING NEW? A COMPARISON
BETWEEN CAPITAL ACCORDS BASEL II AND BASEL III
Abstract:
Basel Accords represent the most important documents of banking supervision. Basel II came into
force almost at the same time as the financial crisis set in. Relatively soon after this, the work on
the new capital accord known as Basel III was initiated. The question is whether the new
agreement brings something really principally different from Basel II, or whether it is just a tool to
reassure the public and markets with some form of stricter requirements. Basel Committee is based
on G-20 countries representation. Introduction contains a brief explanation of how the Basel capital
accords are reflected in European law. The first part of the article explains core principles of Basel
II with several possible explanations of its failure. The second part clarifies the main principles of
Basel III and compares them with Basel II. The criterion for comparison is search for fundamental
distinctions between the introduced tools. From five monitored areas (definition of capital, capital
requirements, risk coverage, leverage ratio, liquidity management) three of them meet this
criterion. The redefinition of capital means only better clarification and unification of definitions.
The risk coverage part focuses on technical issues, but no new risks are perceived. There is a
significant change about new capital requirements. Two new buffers are requested. While previous
capital requirement were based on direct connection with risks, the connection between capital
conservation buffer and countercyclical buffer is only indirect to measured risks. Also the leverage
ratio and liquidity management bring new tools and thus principle change. There is a significant
change in leverage...