In March 2023, a new era of banking fragility emerged with the announcement of the failures of Silicon Valley Bank and Signature Bank in the US and the takeover of Credit Suisse by UBS in Switzerland. The new banking turbulence came as a surprise to many observers, because the idea existed that banking supervisors had enforced stricter regulation and supervision of banks after the failure of Lehman Brothers and the international banking crisis in late 2008.
Since the 1980s the Basel Committee on Banking Supervision, which consists of the leading global banking supervisors, has been active in designing capital requirements for internationally active banks. The question is how much equity capital banks need to hold in order to be able to absorb unexpected losses. The so-called Basel Accords are international agreements to harmonize bank capital requirements.
The Basel 1 Accord dates from 1988 and was the first attempt to harmonize bank capital standards. In 2004 it was followed by the Basel 2 Accord which created the possibility for banks to design their internal ratings based systems in order to calculate risk on their portfolios and, on the basis their own risk assesment, the amount of capital banks are required to hold. The Basel 3 Accord was published in 2010 and was a response to the Global Financial Crisis of 2007-2009. This crisis had made clear that capital levels at many banks had been far too low in order to prevent large banks facing liquidity and solvency problems.
The goal of this seminar is to come to an assessment of the Basel Accords. The seminar is presented in an interactive way in order to generate substantial and lively interaction. What problems have been solved and what new problems been created by the Basel Accords? In this respect, we will take a look using insights from economics how incentives are created and distorted by the Basel Accords, leading banks to behave in a way which may be suboptimal from a perspective of financial stability in the medium term.
A key question to answer is to what extent banks are now adequately capitalized in a world characterized by historically high debt ratios and rapidly rising interest rates. In recent reports in April and October 2023, the International Monetary Fund (IMF) has been very concerned about the fragility of the international and financial system. How vulnerable is the banking system, notably in Europe, in case a new financial crisis emerges?
And, finally, what would be the consequences for European banks when the ECB would allow households and companies to have deposit accounts directy at the national central banks of the euro system (digital euro)? In case deposits would move away from commercial banks, these banks would have to compete more for uninsured deposits, leading to higher costs of funding and/or higher equity capital demands by financial markets.
Prof. dr. Harald Benink has been Professor of Banking and Finance at Tilburg University since 2008. Before joining Tilburg University, he was Professor of Finance and Professor of Institutional Design of Integrating Markets at the Rotterdam School of Management, Erasmus University during the period 1999-2008. Harald Benink’s research focuses on banking and finance and on European financial and monetary integration. He has published in leading academic journals (including the Journal of Finance, Journal of Empirical Finance, Journal of Financial Stability, Journal of Financial Services Research and Journal of Risk and Financial Management) and has also published and edited a couple of books (including Financial Integration in Europe and Coping with Financial Fragility and Systemic Risk).
Furthermore, he is Founder and Chairman of the European Shadow Financial Regulatory Committee (1998) and took the initiative for setting up the Shadow Financial Regulatory Committees in Latin America (2000), Asia (2004) and Australia-New Zealand (2006). The Shadow Financial Regulatory Committees consist of prominent professors and other independent experts, issuing policy recommendations in the areas of regulation and supervision of financial institutions and markets.
Successes and failures of Basel Accords:
– Evaluate the impact of Basel 1, Basel 2, and Basel 3 on banking fragility.
– Assess whether these accords have effectively improved banking resilience.
Incentives and distortions:
– Analyze incentives created by Basel Accords and potential distortions in bank behavior.
– Identify unintended consequences of regulatory frameworks.
Capitalization and risk management:
– Examine the adequacy of current bank capitalization amid high debt ratios and rising interest rates.
– Assess the preparedness of European banks for potential crises.
Digital euro impact on banks:
– Investigate consequences for European banks if ECB allows direct deposit accounts at national central banks (digital euro).
– Propose potential policy adjustments based on seminar findings.
– Suggest measures to enhance banking system stability, considering emerging challenges.
Level: VRC Masterclass
Modality: VRC Seminar
Time: 16:30 – 20:00
Member price: € 295,-
Non-member price: € 495,-
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