The banks and that high leverage is the intrinsic

The
common goal Basel III is to strengthen financial stability but there are
different views to establish higher capital requirements both quantitatively
and qualitatively. For instance, Admati et al. (2010) proposed that beginning
of higher requirements will strengthen the financial constancy. In contrast,
DeAngelo and Stulz (2013) argued that far above the ground leverage is optimal
for banks and that high leverage is the intrinsic characteristic of
profitability of the banking business. Similarly, Kashyap et al. (2010) stated
that higher requirements are not cost-effectively justified because it will
raise the cost of funds, decrease the volume of lending and slow the rate of
economic growth in general. Also, Hanson et al. (2011) argued that imposition
of higher requirements on banking sector will move the banking activity to an
unregulated shadow-banking sector. In other words, the capital requirements
evidenced in Basel III are not enough to prevent from possible crises. For instance,
according to Hanson et al. (2011) estimations, this figure should be at the
level of 15%. Furthermore, Miles (2011) calculated that the appropriate
standard of bank capital should be about 20%.

The new liquidity
requirements of LCR and NSFR will affect the functions of the bond market. To
assure LCR, banks will withdraw away from investing high run-off assets such as
Special Purpose Vehicles and Structured Investment Vehicles. The demand for
secularized assets and inferior quality corporate bonds will decline due to the
LCR unfairness lead to holding government bonds and covered bonds by the banks.
As a result, banks will grip more liquid assets and add to the proportion of
long-term debts to diminish maturity mismatch and keep up minimum NSFR. Banks
will also reduce business activities that are subject to liquidity risks.

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4     Conclusion

The Basel III reforms providing a
flexible, risk-sensitive, capital management framework to improve the banking
sector’s capacity to prevent
or at least to reduce the effects of the global financial crisis and makes the
banking industry financially stable globally. The central bank of each country should play a vital role to
implement the reforms of Basel accords issued by the Basel Committee on Banking
Supervision time to time with the purpose of enhancing financial
stability around the world. The Basel III reforms are expected to create a
significant positive net benefit for the world economy. The Basel Committee
should collect financial data from most of the countries in the world to
analyze Big Data to produce the regulatory framework and also an emphasis on
new risk dimensions are facing by the global banking industry.