World Bank Office Jakarta.Bali,December 1,2011. The World Bank, in cooperation with Bank Indonesia, today kick off a joint international seminar to examine the challenges in dealing with macro-financial linkages in emerging markets, along with the appropriate policy responses. One of the key policies options to be explored over the course of the two-day seminar would be the impact of Basel III banking regulations on emerging economies. Basel III is the new global standard on bank capital adequacy and liquidity, developed in response to the deficiencies in financial regulation revealed by the global financial crisis. In the financial sector, Basel III aims to strengthen not just micro prudential regulations, but also the macro prudential regulations that help stabilize financial systems as a whole.
“The global financial crisis has raised the importance of macro-financial linkages and the need for macro prudential regulations. Given the state of global finances, the time is right for regulators from emerging economies to meet and discuss how they can strengthen financial systems and reduce vulnerability against external shocks,” says Dr. Otaviano Canuto, World Bank Vice President for Poverty Reduction and Economic Management.
The requirements of Basel III include the need for banks to hold 4.5% of common equity and 6% of Tier I capital of risk-weighted assets. Basel III also introduces additional capital buffers, such as a discretionary countercyclical buffer, which allows national regulators to require up to another 2.5% of capital during periods of high credit growth. In addition, Basel III introduces a minimum 3% leverage ratio and two required liquidity ratios. The proposed measures under Basel III aim to dampen the pro-cyclicality of the financial sector and to reduce systemic risks, including by introducing measures to address liquidity.
“The policy debate currently taking place is largely in the context of the advanced industrial countries. Yet emerging markets face a different reality which would require more customized policy measures,” says Dr. Swati Ghosh, Economic Adviser, World Bank. “In emerging markets, the interaction between real and financial sectors often accentuates pro-cyclicality.”
“Emerging markets are particularly vulnerable to hot money flows, which can exacerbate financial pro-cyclicality and real sector cycles,” says Dr. P.S. Srinivas, the World Bank’s Lead Financial Economist for Indonesia.
The “Dealing with the Challenges of Macro Financial Linkages in Emerging Markets” seminar brings together central bank governors, deputy governors and senior officials from various regulatory and supervisory authorities from ASEAN+3 and G-24 countries.
World Bank Office Jakarta.Indonesia Stock Exchange Building.Tower 2, 12th Floor (62-21-5299-3000)
Contact: In Jakarta:Randy Salim: (62-21) 5299-3. rsalim1@worldbank.org
Contact: In Jakarta:Randy Salim: (62-21) 5299-3. rsalim1@worldbank.org
