Overview of the proposed regulations from Basel III and Solvency II

The financial sector is undergoing a change in decades in terms of quality and quantity of investments. Originally a change in the financial sector in the seventies (1973 and 1974) can be seen. First, the Arab-Israeli war was responsible for the loss of oil production so that prices rose and a financial underweight was created. The second stumbling block was the sinking of the Cologne-based bank. Both events made clear at the time that the financial market without regulation manages. In response, the Basel Committee on Banking Supervision was established, devoted himself with the rules of the Basel I regulations of the financial market. In particular, the capital adequacy of banks was the focus of the Committee, in which an equity ratio was in favor of 8%.

Furthermore, the lending by banks to the 12.5 times its own equity are limited. These regulations have been so criticized, that was published in 1999, the rules base II. Basel II was implemented later at the European level for another two years by the Banking Directive and the updated capital market policy. Basel II also referred to the economic risks of the banking sector. It came as a result of a transformation from quantitative to qualitative banking supervision. Basel II occupied themselves with the requirements for minimum capital, the introduction of risk-sensitive capital requirements. In addition, even the review process of bank supervision has been normalized. It is assumed that an adequate supply of equity capital, the failure of a bank can not stop it.

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Furthermore, the problem of market discipline are handled. By regulation, a sincere introduced reporting and disclosure requirements are harmonized. In particular, this should shed light on the structure of capital, risks incurred and equity capital required to be given by banks. The financial crisis made it clear that the main objective of Basel II has been missed. It was apparent that more and more shares fail of individual claims, leading to a collapse in demand for securities, and thus led to a complete failure classic.

Along with this went a high value loss, which destroyed billions of dollars in no time. Due to the concatenation of the global financial market led to chain reactions, which permitted the spread of the global financial crisis. As part of the financial crisis occurred more frequently in the financial sector weaknesses, which exposed the fragility of the system. To comply with the requirements of the regulations, there are the possibilities of forming a liquid asset side and the increase in the liability side by increasing the capital and the reinvestment of profits. In detail:

Since the beginning of the financial crisis, many banks are subject to the increasing demand for debt. Due to the lack of pricing in the market risk has been deposited to the beginning of the crisis too little equity, that were required as a result of the crisis more debt. This calls for further regulation of the financial market. The regulation of the financial market is largely a result of Basel III by the Basel Committee on Banking Supervision trying to achieve, namely to strengthen the resistance of the sector of credit institutions.

In particular, while the focus on quality and quantity of the equity of banks are determined. Along with Basel III is also the regulation of insurance companies and reinsurance companies under Solvency II (EU Directive 2009/138/EC). This increased solvency are the focus of the standard. It thus looks more transparency and long-term orientation will be created in the market to create a liability contribution of financial institutions in the context of risky transactions. Both are Basel III and Solvency II come into force on 01.01.2013.

However, the final implementation of both standard works only for year 2019 is provided. For banks, this means prior to the expected reciprocal effects to estimate both standard works and intercept. For both schemes will not only impact on banking regulation, but also have an impact on the economy. In particular, higher costs in raising capital will be a direct consequence.

Two systems have in common is that prescribed standards are observed and market-based actions can not be freely vornehmbar. Both schemes are first and foremost to protect the financial assets of private investors and the primary stability of the financial system. As already mentioned, the first regulations concerning credit institutions. Here there is a peculiarity of the sector. Often banks are intertwined, so get that instability in a company other banks also in trouble. Therefore, in principle, the goal of helping to improve minimum capital requirements. This means that the capital should serve as a buffer losses occurring. This is evident not least from § 1 KWG.