To answer this question I think we have to ask ourselves the other one: what is the nature of credit crises? If Bernanke & Co is right then crises are irregular phenomena. If not then credit crises are an inevitable part, a phase of the credit cycle, which I personally think is true. If so, then creating countercyclical capital buffers or strengthening the capital to assets ratio is quite meaningless - this is similar to singing down in our helplessness against the doom of the market.

As we know, level of capital adequacy doesn't play a decisive role in curbing the credit cycle (see for example "Curbing the credit cycle" by Haldane or Limited Liability Problem, Bank Capital and Credit cycles: A behavioral economic approach). Another line of argumentation can be found in historical evidence - era of free banking. Both in England and in Scotland capital adequacy was high 70-80%. Yet in Scotland credit cycles and credit crises in particular were rare and mild phenomena what can't be said about England ( USA and New England, 19 century - similar story - see e.g. works of M. Rothbard).

Second, speaking strictly of the impact of Basel 3 on capital adequacy -  it actually may help to shield the banking sector in times of crises but it can't cure it from credit cycles (credit crises) as a form of inherent instability of markets, brought to life by bounded rationality and uncertainty of economic condintions. Neither it prevents the cycle or significantly lowers the amplitude because the buffers give birth to additional risk seeking in times of market oveheating phase.

And speaking of the result we should say that it is unambigious in nature: helping in times of crises and meaningless in times of credit risk accumulation.

Hope that the answer would be useful.

Thanks for the question stated. The topic is actually quite important.

Best wishes,

Burakov Dmitry.

Dimitry, thanks for the useful comments. I prepase a paper related to this theme which will be published at "International Journal of Economics, Finance and Management Sciences". As the Lead Guest Editor of the Special Issue on "Global Banking Restructuring & Reorganization: Lessons from the Current Financial Crisis ", I invite you (and your colleagues and researchers)  to submit a paper. For more info check:

http://www.sciencepublishinggroup.com/specialissue/specialissueinfo.aspx?specialissueid=173003&journalid=173

Best Regards

Georgios

If you follow big banks across Europe and USA ( follow my quarterly catch up at http://advantagesrus.wordpress.com ) you will notice the regulators have made a big dent in leverage at all banks with or without harmonization of capital requirements in illiquid markets like structured finance where individual regulators like the Federal Reserve continue to face challenges as will again show in the upcoming CCAR( stress tests) in the US and were evident int he flailing European banks.

The typical challenge to effectiveness of Basel 3 thus actually just comes post facto from these flailing banks in Europe where instead of deleveraging constructively, the banks have made the pretence of siding with regulators while choosing to deleverage at the cost of imposing negative credit growth on the European Economy, and voila the question of effectiveness of the most basic steps taken by regulators of Basel 3 who continue to constructively listen to banks while hopefully following their mind and ensuring competitive deleveraging at banks in due course. 

Hi,

You may be intetrsted by this recent paper:

Optimal Leverage Ratio and Capital Requirements with Limited Regulatory Power.

By: Ho-Mou Wu; Yue Zhao. Review of Finance. Oct2016, Vol. 20 Issue 6, p2125-2150. 26p. DOI: 10.1093/rof/rfv068.

Sujets: FINANCE; Capital requirements; Banking industry -- Government policy; Risk management in business; Incentives in industry; Savings Institutions; Other Depository Credit Intermediation; Personal and commercial banking industry; Commercial Banking; Banking industry

Best regards

Hi,

Here is another one:

Announcement Effects of Contingent Convertible Securities: Evidence from the Global Banking Industry

European Financial Management January 2017, (pages 127–152)

Manuel Ammann, Kristian Blickle and Christian Ehmann

Best regards

The fact that central supervisory authorities usually respond with a delay in creating new regulations as part of improving risk management systems in relation to technological advances and new types of financial instruments created in banks, including e.g. credit derivatives (which was exemplified by negative systemic effects that were significant sources of the global financial crisis of 2008) this is the smaller problem. On the other hand, the bigger problem is that some banks, first of all some investment banks have ceased to operate as public trust institutions, do not apply the principles of corporate social responsibility and business ethics in key issues of implementing banking procedures, including financial security procedures and credit and operational risk management etc., deliberately increase and use the asymmetry of information between the bank and the client and do not always fully comply with the guidelines, recommendations and regulations of the amended standards on financial security and improvement of risk management procedures created by banking supervision institutions, central institutions supervising the entire financial system. This issue also concerns the impact of Basel III regulations on capital adequacy and indirectly also on the security of national and international financial systems and also on the global banking system. I conduct research in this area. The conclusions of the research I published in scientific publications that are available on the Research Gate website. I invite you to scientific cooperation.

Best regards,

Dariusz Prokopowicz

Please look at EBA's recent impact assessment. You see additional capital requirements for some countries (Northern European countries eg Sweden, Germany, which are significant (above 20%), although the Basel Committee had no Intention to so (on a global level). These results doesn't include the results for banks' solvency and additional capital requirements caused by corona. Additional capital requirements caused by Basel III (main Driver: the output floor) will results in adaptions for example additional risk taking and/or a reduction of RWA. This can cause additional costs for customers and/or a reduction on credit supply.