Supervision of financial institutions

Abstract

Purpose – This paper aims to highlight the new regulatory framework established by Basel III. Design/methodology/approach – This paper provides a critical review of the existing literature concerning bank supervision while providing an overview of the transition from Basel I to Basel III rules and critical appraisal of the current regulatory framework. Review of the existing literature. Findings – Basel III introduces new measures in favor of bank stability and in order to mitigate the propagation of financial shocks. But on the other hand the new regulatory framework adds an extra burden to banks’ business plans affecting credit policies and thus the real economy. Another issue that is not properly addressed is the rising of financial innovations that are able to pass by the new regulations. Overall Basel III rules are moving to the right direction but need to stay always up-to-date in order to catch up with the modern ever-evolving financial system. Pros and cons. Need for improvement. Originality/value – The paper presents an up-to-date review of Basel rules with future prospects.