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Dr Stephen W. Hartman
The Basel Committee and the International Financial Crisis
ABSTRACT
The international financial crisis beginning in 2008 revealed
that the banking reforms of Basel I and II were not sufficient
to stem the subsequent banking crisis, and may, indeed, have
contributed to it. Basel III emphasized minimum
requirements for higher quality capital termed core capital.
There is no doubt the banks are going to be facing tighter
capital ratio requirements under Basel III. However, there is a
loophole. The difference between the total capital
requirement of 7.0% and the Tier 1 requirement can be met
with Tier 2 capital, which is much less defined. Basel III
replaced the original stress testing provision paragraph in
Basel II with a new provision. The new stress testing
procedure emphasizes the importance of measuring
counterparty risk. However, Basel III still has sufficient
loopholes in capital requirements and international
enforcement to prove insufficient in the event of another
international capital crisis.
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