The Great Recession of 2008 caused banking failures around the globe. The Basel Committee on Banking Supervision responded swiftly to create new minimum capital requirements for financial institutions in hopes of preventing additional failures and warding off future crises. Although the new capital standards that Basel III proposes are a step in the right direction, those standards alone will not be sufficient to prevent future bank failures in times of economic decline. Rather, true financial sector stability requires adequate capitalization of all institutions in terms of quality and quantity of capital, a strong regulatory framework, and a limitation on the size of systemically important institutions. By analyzing the pre-Recession banking regulation of the varying economies Canada, Switzerland, and the European Union, and each economy's resultant stability during the Great Recession, it becomes clear that minimum capital requirements for financial institutions do not directly correlate to financial sector longevity. This note considers the other factors that have an effect on the stability of financial sectors and proposes that Basel III capital minimum standards without strong banking regulations and reduction in the size of systemically important institutions will not prevent future financial turmoil.
Erin Pentz, Comment, Third Time’s the Charm: Will Basel III Have a Measurable Impact on Limiting Future Financial Turmoil?, 3 Penn. St. J.L. & Int’l Aff. 261 (2014).
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