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Basel III and banking efficiency
School of Business, Economics and Law, University of Gothenburg.
Linnaeus University, School of Business and Economics, Department of Management Accounting and Logistics. (Corporate governance)
2013 (English)In: Bank Performance, Risk and Securitisation / [ed] Joseph Falzon, Palgrave Macmillan, 2013, 20-36 p.Chapter in book (Refereed)
Abstract [en]

The overall aim of the Basel III accord is to minimize and preferably eliminate the risk of global financial turmoil in the future. The accord emphasizes the importance of increasing the capitalization of banks and their liquidity. In this chapter the authors analyze its likely impact on banking efficiency. The analysis is based on a fictitious bank which is operating at the very edge of the Basel II regulatory capital requirement and gradually adapting to the new regulatory framework. This analysis demonstrates that the new liquidity and capital adequacy requirements of Basel III are likely to have substantial effects on both the returns and risk exposures of banks. The higher liquidity requirement will not only lower the bank’s liquidity risk, which will lead to less interest revenue, but will also lower its interest rate risk exposure. Then the sharpened capital adequacy requirements will result in lower return on equity. On the other hand, the return on assets will increase due to lower proportion of debt in the bank’s funding. The analysis also implies that Basel III will cause a large price effect if market competition is too weak to make banks price takers. Hence, a bank’s customers will have to pay higher prices for loans of the same risk class and/or get paid lower interest rates on their savings and deposits.

Place, publisher, year, edition, pages
Palgrave Macmillan, 2013. 20-36 p.
Series
Palgrave Macmillan Studies in Banking and Financial Institutions
Keyword [en]
Basel III, efficiency, capital requirement, bank
National Category
Economics and Business Business Administration Economics
Research subject
Economy, Business administration; Economy, Economics
Identifiers
URN: urn:nbn:se:lnu:diva-28270ISBN: 978-1-137-33208-0 (print)OAI: oai:DiVA.org:lnu-28270DiVA: diva2:641602
Available from: 2013-08-19 Created: 2013-08-19 Last updated: 2014-02-05Bibliographically approved

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Willesson, Magnus

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CiteExportLink to record
Permanent link

Direct link
Cite
Citation style
  • apa
  • harvard1
  • ieee
  • modern-language-association-8th-edition
  • vancouver
  • Other style
More styles
Language
  • de-DE
  • en-GB
  • en-US
  • fi-FI
  • nn-NO
  • nn-NB
  • sv-SE
  • Other locale
More languages
Output format
  • html
  • text
  • asciidoc
  • rtf