Publication detail

Implications of the New Basel Capital Accord for European Banks

Author(s): prof. PhDr. Petr Teplý Ph.D., PhDr. Karel Diviš, Ing. Liběna Černohorská, Ph.D. (University of Pardubice)
Type: Articles in journals with impact factor
Year: 2007
Number: 1
ISSN / ISBN: 1212-3609
Published in: E+M Economics and Management, Czech Republic
Publishing place: Liberec, Czech Republic
Keywords: New Basel Capital Accord , capital adequacy, banks, bank regulation
JEL codes:
Suggested Citation:
Grants: 402/05/2123 (2005-2007) Efficiency of Financial Markets and New Basel Capital Accord (NBCA) IES Research Framework Institutional task (2005-2011) Integration of the Czech economy into European union and its development
Abstract: On January 1, 2007 the New Basel Capitol Accord (Basel II), which will influence many financial institutions around the world, comes into force. Czech banks and investment firms will be affected as well, because the European Union (EU) has accepted these new regulatory rules with a few minor exceptions. The aim of this paper is to provide the historical background, key features and impacts of Basel II on economic subjects. The overall objective of Basel II is to increase the safety and soundness of the international financial system. Basel II is based upon three main pillars: Pillar I deals with the minimum capital requirements for credit, market and operational risk; Pillar II focuses on the supervisory review process and finally Pillar promotes market discipline through enhanced disclosure requirements for banks. The new accord is expected to have three main economic consequences: higher cyclical fluctuations, an increased level of investments and higher economies of scale. However, there have been numerous criticisms concerning Basel II. These encompass four principal elements: higher procyclity, an excessive using of external ratings, an excessive prescription of the Basel II document and finally the difficulty to quantify operational risk. In terms of quantitative results of Basel II, an additional small rise of Gross Domestic Product in the European Union is anticipated.




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