Overview of the proposed regulations from Basel III and Solvency II

From the principles of commercial law, this results in the need to estimate the debts of an institution and thereby to praise unexpected bad debts, in order to determine the amount of equity needed to. Pursues the goal is that banks have exactly as much reproach equity, arising as a potential loss would be (so-called consistency level). Bad debt or losses should therefore be compensated completely by equity. This also means that capital depends on the transactions undertaken by a credit institution. The more transactions a bank acts fails and the higher the risk thus incurred, the higher the equity must also be present.

The regulations also set in the capital and to strengthen its capital reserves and should also give incentives to manage risk consciously. A credit institution is therefore required to ensure sufficient liquidity. This is not least in the tasks of the banking sector, namely the transformation period. This is the funding of long-term and less liquid assets as part of a short-term funding. This leads to a mismatch between assets and liabilities of deadlines, which could lead to life threat of a bank in the absence of liquidity for themselves. To eliminate this problem is being discussed to form a ratio of within one month from the available cash and cash requirements and composed within a month callable obligations. This ratio should be greater than one.

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Basel III has also been caused by the additional task of credit institutions, namely the promotion of long-term growth in the economy. The financial crisis, however, quality and quantity of the banks and the confidence in the solvency of banks has fallen dramatically. This meant for the real economy is a significant shortage of credit and the collapse in demand in the export. This will also give rise to the banks of the rules of the Basel Committee, said no rules passed in international law but rather represent a recommendation to implement in European and German domestic policies and legislation will.

The European Commission has taken these ideas and presented a set of rules, which goes beyond Basel III. Basel three refers therefore to the problems of debt, liquidity and capital position of banks. These sectors fall into an unstable situation, the negative impact on the economy, these benefits in return from the quality of the financial sector. Thus, the financial sector is a kind of public law applies task to support and regulate it. Since it is a part of the private sector, only minimum requirements are implemented. Therefore it was decided to increase the equity in the form of common equity. The cash rate is calculated from the sum of capital in relation to total risk-weighted assets.

This in turn determined by multiplying the exposure value for a bank with a risk weight of the debtor (compare German Bundesbank, 2011, page 40). The application of risk weights is carried out regularly according to the class assignment of the claim and after the credit rating. With the introduction of capital ratios to the core capital ratio to increase to about 6%, but needs at least 8% of risk-weighted assets. From 2016 to maintain a capital buffer and a counter-cyclical capital buffers are introduced. After the introduction should be a gradual increase to 5% by 2019. This is also to common equity. The hard core capital ratio is thus accumulated to 9.5% in 2019 to bring about.

The intention is that the completion of short-term losses without restriction of daily business. The countercyclical capital buffer is used as a cushion for cleanup-related losses arising occurring. There is also the highest debt ratio (leverage ratio) should be considered to be introduced as a restriction to prevent a high debt and debt reduction process. It serves as a correction of errors in risk-based capital and modifications within the scope of internal rating models. It refers to the total assets. Thus, inaccuracies in risk models of banks and an equity offset the deposit guarantee. However, it should be noted that the leverage ratio is not yet standardized and until 1 January 2018 should be implemented. So far, the banks are in a transitional phase, with the leverage ratio should be maintained at a level of 3%. There is also a duty to publish the leverage ratio.

Even in the context of the financial market crisis implements the minimum liquidity ratio as the ratio of highly liquid assets of a first-class bank and net outflow of cash within 30 calendar days. The aim of the minimum liquidity ratio is to ease liquidity constraints. The calculation of minimum liquidity ratio is based on the assumption that the outflows are taking a higher priority than the inflows. Furthermore, the reduction shall be included with the borrower’s financial institution, a partial loss of deposits and a partial refinancing option.

This will be accompanied by the structural liquidity ratio, which is concerned with the long-term solid liquidity position of banks. It is set with a time horizon of one year, the source of funding in proportion to the amount for a stable funding, with the resulting value> must be 1. Consider, among others, equity, preferred stock and debt with a residual maturity greater than one year. The resulting amount for the structural liquidity ratio is derived from the sum of the near-liquid assets and the medium-term financing needs off-balance sheet transactions. Intends to ensure that the mismatch between assets and liabilities within the bank’s balance sheet is to be avoided. Thus, the active transactions should be matched to a possible refinancing.