Page 45 - Azerbaijan State University of Economics

THE JOURNAL OF ECONOMIC SCIENCES: THEORY AND PRACTICE, V.79, # 2, 2022, pp. 37-50

After the 2008 global crisis, the Banking Supervision Committee created the Basel III
regulation, which consists of a set of new global standards that were generally
expressed in 2010. These standards were approved by developing countries and
industrialized countries at the G20 summit in Seoul. Basel III was developed as the
top model of Basel II standards (Işık & Akish, 2020).

Basel III introduces new capital and liquidity standards to strengthen the regulation,
supervision and risk management of the entire banking and financial sector. Basel III
was adopted by the members of the Basel Banking Supervisory Committee in 2010-
2011 and was implemented from 2013 to 2015. The changes made in Basel III since
April 2013 extended the application until March 31, 2018. In response to deficiencies
in financial regulation that emerged with the 2000 financial crisis, Basel III aims to
strengthen bank capital requirements by increasing bank liquidity and reducing bank
leverage (Gürel, 2012).

The globalized financial world requires banks to adjust their capital frameworks and
new capital buffers, financial institutions according to the current Basel II rules, and
to increase their capital quality. The introduced new leverage ratio provides a non-
risk-based measure to complement the risk-based minimum capital requirements. The
new liquidity rates are capable of ensuring the protection of sufficient funds in case
of other serious banking crises that will occur (Erdoğan, 2014). Basel III is an
advanced and expanded form of Basel II (Cicoğlu, 2019).

Capital requirements - Basel III rules introduce the following measures and additional
capital buffers to strengthen capital requirements. The Capital Protection Buffer is
designed to absorb losses during periods of financial and economic stress. It requires
financial institutions to maintain a capital conservation buffer of 2.5% to withstand
future periods of stress and to bring the total common capital requirement to 7% (4.5%
common capital requirement and 2.5% capital conservation buffer). The capital
protection buffer is met only by common equity. Financial institutions that do not
provide a capital protection buffer face restrictions on dividend payments, share
buybacks, and bonus payments (Özcuşa, 2018).

The Countercyclical Capital Buffer is between 0% and 2.5% of the common capital
applied according to national conditions. This buffer serves as an extension to the
capital conservation buffer (IBM, 2021).

High Common Equity Ratio:
• 3.5% from January 1, 2013
• 4% from January 1, 2014
• From January 1, 2015, it is 4.5%.

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