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Basel3 Are Laws To Prevent A New Financial Crisis?

Basel3 Are Laws To Prevent A New Financial Crisis? After the dreadful financial crisis the world has experienced during the past three years, and caused the banks, it was necessary to reconsider the international laws and the rules governing the work of banks. This is what actually happened last Sunday, September 12 .


The main amendments that called «Basel 3 rules» in the following: forcing banks to increase the funds allocated by the (reported as a reserve) to fill the financial gaps, in the event of a crisis or a shortage of cash, as happened in the recent credit crunch. This usually happens because of the scarcity of bad debt or bad debt, a debt that owners fail to repay the banks, and Then the bank bears the losses.
According to existing laws Currently, the banks allocating only 2 per cent of total loans as seed money up to make up for this loss, but the new Basel rules this figure increased more than three-fold to 7 per cent. It also encouraged «the Basel Committee on Banking Supervision,» the big banks to keep larger reserves than the proportion of the 7 per cent, because the collapse of such banks could destroy the entire financial system, but the Commission has not yet determined the additional percentage that expect large banks that adhere to. Indeed, the big British banks have raised their proportions, to a range between 13.7% ( «Barclays» Bank) and 9.2 per cent ( «Lloyds» Bank).

It stresses the new laws that in the event a bank in breach of these rules, which fell reserve funds ratio has about 7 per cent, will be eligible for financial authorities to prevent the bank from distributing dividends to shareholders, or the granting of financial rewards for its employees, or even pay cuts.

In order for banks can keep up with such a large increase, it must either raise their capital (through new shares initial public offering, or find other sources of funding), or reducing the size of their loan. In both cases, it needs some time. So it has been awarded «Basel» new agreement banks until 2019 an opportunity to apply these rules College, that the application gradually starts with the beginning of 2013. By 2015 the banks must have raised the reserve funds to 4.5 percent, which is what is known as «core tier – one capital ratio», then lift them by a further 2.5 per cent by 2019, which is known as the «counter – cyclical». Also, some states lobbied for the adoption of additional protection ratio at a rate of 2.5 per cent, the total up to 9.5 per cent, so that imposes this requirement in times of prosperity. However, the group «Basel» have failed to agree on the procedure and left his command to the individual states.

* Welcome and apprehensive at the same time

* Although the majority of economists and financial officials in Western countries have welcomed the new laws, some of them have expressed fears that the move lead to put more financial pressure on banks, so are forced to reduce their lending volume, which in turn will affect negatively on economic growth, and out of the recession that is still plaguing Western economies.

In this regard, he said the «Middle East» Adrian Kltrbak, from the Bank of «Barclays» that «the majority of companies and businesses, especially medium-sized and small, rely heavily on bank loans and facilities that you get from the banks. Whenever these sources dried receded course business activities and expansion in business, which also means a decline in the creation of new jobs, and perhaps an increase in unemployment. This will result in a contraction of economic activity, because the banking system is the lifeblood of economic life, it is like the oil in which they operate car engines. »

However, the opponents of this view, such as of «Bank of America – Merrill Lynch,» said the «Middle East» The old rules, which require banks to 2 per cent only seed money up, allowed banks to enter into loans and high investment risk without the have enough money to fill the gaps in the event of lost these loans or investments failed. This makes the bank vulnerable to bankruptcy, and displays the entire economy at risk, as happened in 2007 and 2008 when it collapsed, or almost collapsing, the majority of the big banks, not for government intervention, spending billions of dollars to bail them out.

And of course everyone is paying the mistake the banks at all costs, because the government funds came from the public treasury and the taxpayers’ money.

Perhaps it boils views are opposing are as follows: one says that the new laws will ensure the non-collapse of the banks if there were a new financial crisis, while the other opinion says that these laws will be imposed on the bank to keep billions of dollars in reserve while must be spent on the economy at this particular time in order to help revive and take it out of recession. And perhaps views are also reflected in the positions of major countries, because the United States and Britain were want to apply the new laws as soon as possible (max. 2018), while Germany was like to be applied in 2023, after confirming that the economy has already emerged from recession.

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