Page 38 - Azerbaijan State University of Economics

Nigar Huseynlı: Basel Standards And Theır Applıcatıon

As in many areas, it is possible to see the effects of globalization in the field of banking

in recent years. As a matter of fact, as a result of this, it is clearly observed that mergers

and acquisitions have increased among banks that want to further increase their
competitiveness. The increase in acquisitions and mergers between bank companies
directly affects the distribution of power and balances. As a result of this interaction,
international big banks have discovered the importance of risk management and
realized the added value created for banks by preventing possible losses by taking the
necessary precautions against these risks by being aware of the risks carried.
Thereupon, banks had to make significant investments in order to create and retain a
trained personnel policy on the subject. In addition, millions of dollars of investment
to carry out R&D activities and develop information systems has been an inevitable
result. At the end of these developments, some applications started to be preferred.
Finally, emerging best practices inspired what are referred to as the Basel Criteria.

The Basel criteria have led to a significant change in the habits of banks and business
owners requesting loans in determining the loan interest rate and which elements can
be accepted as collateral. Since the process is still ongoing, it would not be a surprise
if the changes continue in other areas as well.

In general, banks are balanced. Problems in the banking sector affect the general
market more than in other sectors. A sudden stop in the banking system has the
potential to paralyze credit situations and investments. Furthermore, compared to
other sectors, a bank's weakness in the banking sector tends to weaken its competitors
in the short term (Borchgrevink, Søvik & Vale, 2013).

In order to meet the requirements, the capital of banks should be increased
significantly, both qualitatively and quantitatively. Thus, banks become more resistant
to sudden risks. Regulators believe that banks should have systemic risk associated
with their capital requirements. Adequate capital is essential to protect against
systemic shocks. Banks view capital requirements as a unique buffer against shocks
(Liu, 2018).

Given the vulnerability created by banking systems, the existence of legal regulatory
rules and the existence of legal liquidity ratios are recommended. Margin operations
make banks more resilient to liquidity shocks in the interbank and repo markets.
Banks, being at the center of financial systems, create conditions for the emergence
of functions such as capital markets, insurance and asset management. The fact that
the central point of the financial crisis is the banks brought to mind once again how
important the banks are.

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