Basel III: To what extent will it
promote sustainable development?
© 2012 The International Institute for Sustainable Development
© 2012 The International Institute for Sustainable Development Published by the International Institute for Sustainable Development.
International Institute for Sustainable Development
The International Institute for Sustainable Development (IISD) contributes to sustainable development by advancing policy recommendations on international trade and investment, economic policy, climate change and energy, and management of natural and social capital, as well as the enabling role of communication technologies in these areas. We report on international negotiations and disseminate knowledge gained through collaborative projects, resulting in more rigorous research, capacity building in developing countries, better networks spanning the North and the South, and better global connections among researchers, practitioners, citizens and policy-makers. IISD’s vision is better living for all—sustainably; its mission is to champion innovation, enabling societies to live sustainably. IISD is registered as a charitable organization in Canada and has 501(c)(3) status in the United States. IISD receives core operating support from the Government of Canada, provided through the Canadian International Development Agency (CIDA), the International Development Research Centre (IDRC), and from the Province of Manitoba. The Institute receives project funding from numerous governments inside and outside Canada, United Nations agencies, foundations and the private sector.
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Basel III: To what extent will it promote sustainable development? June 2012
Written by Oshani Perera
The author is grateful to the following individuals for their comments and contributions: Thomas A. Myers, T.A. Myers and Co; Paul Clements Hunt, Former Head of UNEP Finance Initiative and Founder, The Blended Capital Group; Ivetta Gerasimchuk, IISD; Daiana Geninasca, University of St Gallen; Salvatore Cantale, IMD Business School, Lausanne; Marlene Roy, IISD; and Kai Buntrock, KFW.
IISD REPORT JUNE 2012 2012 The International Institute for Sustainable Development Basel III: To what extent will it promote sustainable development?
Traditionally, banks have been the main pillar of financial intermediation and, consequently, a fundamental source of systemic risk, which in its worst forms have resulted in financial crises. In times of economic downturns, financial institutions welcome governmental curative intervention, which in many cases has proven to be misappropriated. One big intervention was Basel II, which has been criticized by many sceptics already in the early 2000s and has been accused of having contributed to the late-2000s financial crisis. Basel III has been then elaborated on the grounds of the obvious inappropriateness of Basel II. The framework sets out higher and better-quality capital standards, better risk coverage, leverage ratios as a backstop to the risk-based requirements, measures to promote the build-up of capital that can be drawn down in periods of stress and the introduction of two global liquidity standards. However, Basel III and its requirements have been questioned. For one thing, Basel III bases its requirements on those formulated in Basel II, possibly still exacerbating financial and monetary imbalances between industrialized and lower-income countries. For another, it creates ambiguities that regulators and the banking industry try to clarify. These regard, for instance, new liquidity standards and the containing leverage that may increase capital costs and, potentially, lower profitability. Furthermore, Basel III may create problems for emerging countries, which may face shortened...
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