‘Basel IV’ and the stability of the financial industry

The four pillars of ‘Basel IV’
The Basel II recommendations were based on three “pillars.” The Basel III revisions (referred to by some as “Basel IV”) added another: liquidity requirements (source: macpixxel for GIS)
  • The latest batch of rules in the Basel process will introduce crucial changes
  • Many in the banking industry say the rules are too restrictive
  • Quantitative analysis shows they actually don’t go far enough
  • More changes are in store, leaving the industry in uncertainty

The global financial crisis of 2007-2008 showed how undue risk-taking, and even fraudulent practices, had become commonplace in the banking industry worldwide. Supervisors and regulators watched helplessly as a sudden cascade of major bank failures plunged the leading economies into a severe (and, to some extent, still ongoing) recession. For the next decade, overcoming the weaknesses of existing national and international regulatory frameworks became a top priority.

When the crisis hit, several regulatory safeguards were already in place in the banking industry that were supposed to prevent a systemic collapse. Among them was the set of recommendations on banking regulations put forth by the Basel Committee on Bank Supervision (BCBS).

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