AbstractsBusiness Management & Administration

Basel III and Financial Risk Management

by Tadas Perednis

Institution: Roskilde University
Year: 2014
Keywords: Basel III; Risk Management
Record ID: 1120161
Full text PDF: http://rudar.ruc.dk/handle/1800/14356


As an answer to the financial crisis in 2007 the Basel Committee on Banking Regulation introduced a new regulatory framework for the financial sector: The Basel III Accord. One of the main developments of this accord was the new regulation on capital reserves. We wrote this project in order to investigate on the impact of these new regulations on micro and macroeconomic level. Therefore we compared the capital requirements of the Basel III accord and the previous Basel II framework on a hypothetical stock portfolio. To do so we used a popular tool of financial risk management, the Value at Risk approach. Therewith we were able to calculate the different capital reserves for our portfolio. Afterwards we measured the costs of opportunity on the additional reserve. Our results show, that the increase in reserve can have an impact on the banks profitability and the economic growths. Thus we argue that not the increase in reserve itself results in these impacts but the differences in implementation of the reserve requirements by the Basel III adopting countries.