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Basel III: Improving Canada's Banking System

662 Words3 Pages

Introduction:
The financial crises in recent year have shown us the weakness of the regulatory framework among banks and it shows the gap that we could fill to improve bank’s risk management practices. The crises have show us that a resilient banking system is necessary for archiving a sustainable economic growth, we can take Canada for example, while 12 bank in US bankrupted since 1840, no bank in Canada experience the financial difficulty during the financial crises1. This is because of its high capital requirements and leverage ratio restrictions, these regulations have keep Canada’s banking system save from the financial crises and keep it in a sustainable economic development.
As a result from the crises, the regulatory authorities decided to implement new regulations to strengthen global capital market and market liquidity. Basel III is a set of framework designed to increase the bank’s ability to handle unexpected economic shock result from the stress in the financial market.

The main focus of Basel III is to regulate the Capital and Liquidity of banks. …show more content…

The capital is there to act as buffers to the loan to prevent the depositor suffer a loss if the loan were not repaid. Basel III apply a weighting to the asset the bank is holding known as Risk-weighted asset (RWA). The asset are multiplied by a risk rating which is graded by referencing to the major credit rating agencies, 0% (safest) to 100% (most dangerous). The bank is required to hold a required percentage of the RWA they own. While the Basel rule further devide the capital of the bank into different tiers base on whether they are common stock or preference

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