The Relevance of Basel III in Ensuring Prudent Risk Management in Banking

Mike Adu-Gyamfi

Abstract


This paper discusses the necessity and effectiveness of Basel III in ensuring prudent risk management in the banking system across the world. The aftermath of the 2007/2008 global financial crises provoked the introduction of Basel III in 2009. It was published to improve upon Basel II which proved to have serious weaknesses exposed by the financial crises; and more importantly to avoid a reoccurrence. A careful analysis of the 2009 Accord shows that minimum capital requirements, risk management practices and disclosures to the public are reflective of risks inherent in banks’ portfolios. Thus, it provides more controls than those stated in previous Accords, thereby promoting a more resilient banking sector and, to a greater extent, ensuring its stability and soundness: a case for its necessity. However, effective and timely implementation of the requirements in the Accord are largely dependent on the policy space of member countries. In addition to the need for upgrading supervisory capacity, the policy guidelines for the Basel III framework needed to also ensure a successful implementation are still a work-in-progress, suggesting that, Basel III is not sufficient in guaranteeing prudent risk management in totality in the global banking industry.


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References


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Copyright (c) 2016 Mike Adu-Gyamfi

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This work is licensed under a Creative Commons Attribution 4.0 International License.

Creative Commons License
This work is licensed under a Creative Commons Attribution 4.0 International License.