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Abstract:
In the period 2007-2009 the global economy faced the most severe crisis after the Great Recession of 1929. In the aftermath of the crisis a substantially revised version of Basel II, named Basel III, was proposed, introducing new, tighter capital adequacy and liquidity guidelines. Basel III constitutes the new basic embankment against a possible crisis in the future. The same period these discussions were taking place for the new global regulatory framework, the most severe sovereign debt crisis the country ever faced burst out in Greece. One of the main victims of the crisis is the country's banking sector which is sustaining great pressure in its profitability, volume of deposits and credit growth, amongst others. Having as a starting point the Greek banking sector and the effects of the fiscal crisis on it, this paper discusses the new Basel III guidelines and their possible implications in times of turmoil. The new framework can play a crucial role in deterring a new financial crisis; however it should not be regarded as a panacea for all the shortcomings of banking sectors.
Keywords: Basel Accord III, Banking Regulation, Fiscal Crisis, Greece
JEL: E51.G28 DOI: ? 0.2478/vl 0033-01 2-0007-5
1. Introduction
The need for tighter and more robust supervision of the global financial system was apparent long before the 2007-2009 financial crisis. Even though Basel I was the first serious effort for the imposition of international regulation on the banking system, soon it was outrun and superseded by Basel II. The economic shock of the recent financial crisis led the Committee of Banking Supervision of Basel to propose a new global regulatory framework that aims for a stronger and more resilient banking system. Basel III constitutes the new basic buttress against a possible crisis in the future. The new framework not only strengthens global capital standards but also introduces global liquidity standards. It is argued that the implementation of Basel III will lead to a future of more capital, more liquidity and less risk.
Nevertheless, whether Basel III is a major reform or a hurried reflexive action to the recent financial crisis is still a question to be answered. Even though there is a broad consensus among the Basel Committee as well as in capital markets...