Impact of Basel III Norms on Banking Sector in Emerging Markets

The financial crisis exhibited many inherent loopholes in the banking system; from non-compliance, non-disclosure and nontransparency to the need to maintain reserves of capital as buffers to be utilized in the crunch situations. What typically started as credit and counterparty risk for banks in the process of underwriting home-mortgage loans to subprime category of consumers and actually mutated into a number of other types of risk through the web of CDS and CDOs and involved almost all sectors and sections of economy engulfing the almost the whole of developed world into recession notwithstanding its impact of the growing emerging markets. This changed the very perception of risk management and control especially for Banks and FIs.

The main objective of this paper is to study and understand the various reformatory measures introduced under Basel III and other measures introduced by international financial authorities like the Federal Reserve, the FSA, the IMF to rehabilitate the banking system and its impact on the banking system of the emerging markets particularly because emerging markets are still in the developing phase with constraints on several fronts; from financial consolidation to financial inclusion.