Year: 2016 | Month: October | Volume: 3 | Issue: 10 | Pages: 31-41
Was Basel III Necessary and will it Brings about Prudent Risk Management in Banking?
Caesar K. Simpson
Swiss Management Centre (SMC) University.
This paper investigates whether Basel III was necessary and whether it will brings about prudent risk management in banking. The result shows that Basel III was necessary, especially the proposals that had some very useful elements, as the leverage ratio, the capital buffer and the proposal which deals with pro-cyclicality through dynamic provisioning based on expected losses. Particularly, Basel III corresponded to the need for stability coming from the global crisis, raising minimum capital requirements and ensuring that other instruments that count as regulatory capital will genuinely be available wherever that is demanded. The Basel III offers the proper financial background to restore the financial health of banks so that they will willingly and actively deal with one another improving the general financial system. The result also illustrates that Basel III will brings about prudent risk management in banking. Basel III embraces several approaches to improve risk management practices at banks, including increased use of stress tests, more sophisticated models to account for various risks and greater emphasis on the cyclical nature of banking. All these proposals impact the Internal Capital Adequacy Assessment Process (ICAAP), strengthen internal risk governance, and cement the role of risk management in senior management with the increased independence of the Chief Risk Officer (CRO).
Key words: Basel III, Banking, Risk Management, Chief Risk Officer (CRO).