The capital requirements that are contained in the Basel III regime are not sufficient to manage risk, Andrew Scott, professor of economics at London Business School, wrote in a recent Forbes opinion piece.
He noted that many lending institutions across the world have lobbied vigorously so that they will not need to hold capital ratios of between 20 and 25 percent, which the professor said he believes are needed to ensure that taxpayers would not be forced to bail out banks in the event they they fail.
The Basel Committee on Banking Supervision created these regulations in the aftermath of the Financial Crisis, in an effort to manage the risk that could potentially accumulate within banks – and also within the financial system as a whole.
The Basel III requirements were specifically designed so that banks would have the capital needed to sustain a period of sustained outflows. That way, lending institutions would be less likely to fail and require the assistance of the government.
The professor wrote that while global lending institutions have vigorously opposed these higher capital requirements based on the argument that the more stringent rules would bolster lending costs, these organizations have made such claims without having evidence to back up their assertions.
◦ Asset Liability Management
◦ Portfolio Risk
◦ Sensitivities & Hedging
◦ Stress Testing & Scenario Analysis