Measures Aimed at Mitigating Pro Cyclical Effects of the Capital Requirements Framework: Counter cyclical Capital Buffer Proposals

As well as highlighting the importance of introducing counter cyclical capital buffers, this paper draws attention to the need for greater focus on “more forward looking provisions”, as well as provisions which are aimed at addressing losses and unforeseen problems attributed to “maturity transformation of short-term deposits into long term loans.” Whilst the need for forward looking provisioning has been echoed by some authorities on the literature, the paper also adds weight to the argument through its attempt to link such an argument to the ever increasing prominence assumed by liquidity risks – since liquidity also contributes to pro cyclicality. “The complex response of financial institutions to deteriorating market conditions - which to a large extent, is attributed to liquidity shortfalls which reflected on and off balance sheet maturity mismatches and excessive levels of leverage, has resulted in an increasingly important role for liquidity provided by central banks in the funding of bank balance sheets.” Owing to such increased importance of liquidity risks, this paper also attempts to highlight why the Basel Committee’s Counter Cyclical Buffer Proposal – a response to the recent financial crisis (which to a significant extent, focuses on banking sector capital requirements), should also take greater account of more forward looking provisions. In so doing, it draws attention to the importance of coupling forward looking provisions (as well as other measures) with counter cyclical charges and why this provides a better alternative to the mere introduction of counter cyclical capital charges

BASEL III: responses to consultative documents, vital aspects of the consultative processes and the journey culminating in the present framework (Part 1)

This paper is aimed at providing a comprehensive overview of, and responses to, four very vital components of the consultative processes which have contributed to the new framework known as Basel III. The paper will approach these components in the order of the consultative processes, namely, the capital proposals, the liquidity proposals and the Proposal to ensure the loss absorbency of regulatory capital at the point of non-viability. The capital proposals comprise proposals aimed at strengthening the resilience of the banking sector, the proposal relating to international framework for liquidity risk measurement, standards and monitoring and, the countercyclical capital buffer proposal. Whilst the capital proposals have been welcomed, there has been growing realisation since the aftermath of the recent Financial Crises that banks which have been complying with capital adequacy requirements could still face severe liquidity problems. As well as highlighting the importance of introducing counter cyclical capital buffers, the response to the countercyclical proposal draws attention to the need for greater focus on more forward looking provisions, as well as provisions which are aimed at addressing losses and unforeseen problems attributed to “maturity transformation of short-term deposits into long term loans.” The Basel Committee’s consultative document on the “Proposal to Ensure the Loss Absorbency of Regulatory Capital at the Point of Non Viability” sets out a proposal aimed at “enhancing the entry criteria of regulatory capital to ensure that all regulatory capital instruments issued by banks are capable of absorbing losses in the event that a bank is unable to support itself in the private market.” Amongst other issues addressed, the response to the consultative document highlights why the controlled winding down procedure also constitutes a means whereby losses could still be absorbed in the event that a bank is unable to support itself in the private market.Counter cyclical buffers; liquidity risks; pro cyclicality; loan loss provisions; financial crises; bank; regulation; capital; insolvency; financial crises; moral hazard; Basel III

Croatian Accession to the European Union: Economic and Legal Challenges

This paper discusses the opportunities for and obstacles in the way of a dialogue between the Croatian government and the non-governmental sector within the context of the European integration process. Although the development of civil society, the building of institutional and administrative capacities and the strengthening of cross-sectoral dialogue are fundamental preconditions for the implementation of the overall adjustment to the EU, there is no clear list of priorities and demands on the basis of which it might be possible to monitor the progress made in this area by candidate and potential applicant countries for membership. Because of the lack of any clearly defined acquis, several strategic documents of the European institutions and the existing literature about the advances made by applicant states will be used as a point of departure for the analysis. The main guidelines for and obstacles to reform in this area in Croatia will be picked out in the light of the European criteria of good governance and the relevant experience of applicant countries.civil dialogue, non-governmental organisations (NGOs), the third sector,the government, Croatia, the EU, SAA