Implementing Basel III in Europe: disgnosis and avenues for improvement. CEPS Policy Brief No. 275, 27 June 2012

This Policy Brief provides a preliminary diagnosis of the proposed regulatory reforms contained in the Capital Requirements Directive and Regulation (CRD IV-CRR), which translate into EU law the Basel III standards adopted by the Basel Committee for Banking Supervision, and suggests avenues for improvement. The main criticism is that the proposal is not ambitious enough. In some crucial areas, such as the leverage ratio and the long-term liquidity requirements adopted under the Basel III framework, the CRD IV-CRR proposal stops short of making a strict commitment to introduce binding requirements and instead is contented with weaker (and possibly divergent) disclosure requirements.

A Viable Alternative to Basel III Prudential Capital Rules. CEPS Policy Brief No. 291, May 2013

Stefano Micossi argues in this paper that the Basel framework for bank prudential requirements is deeply flawed and that the Basel III revision has failed to correct these flaws, making the system even more complicated, opaque and open to manipulation. In practice, he finds that the present system does not offer regulators and financial markets a reliable capital standard for banks and its divergent implementation in the main jurisdictions of the European Union and the United States has broken the market into special fiefdoms governed by national regulators in response to untoward special interests. The time is ripe to stop tinkering with minor adjustment and revisions in order to rescue the system, because the system cannot be rescued. In response to the current situation, Micossi calls for abandoning reference to risk-weighted assets calculated by banks with their internal risk management models for the determination of banks’ prudential capital, together with the preoccupation with the asset side of banks in correcting for risk exposure. He suggests that the alternative may be provided by a combination of a straight capital ratio and a properly designed deposit insurance system. It is a logical, complete and much less distortive alternative; it would serve better the cause of financial stability as well as the interest of the banks in clear, transparent and level playing field.