Recent Developments in Efforts to Address Global Financial Crises, and to Consolidate Capital, Liquidity Standards and Macro Prudential Policy Tools

Abstract

It is frequently argued that the causes of financial crises are attributed to capital crises, liquidity crises and pro cyclical related issues. The focus accorded by the Basel Committee on Banking Supervision to capital requirements – as opposed to liquidity standards, has also provided further justification for evidence which corroborates a lack of sufficient focus on matters and factors which contribute in triggering a liquidity, and ultimately, banking crises.

Whilst it is widely agreed and not disputed that capital and liquidity requirements both contributed to the most recent Financial Crisis, the extent to which Basel III addresses major/fundamental questions arising from the Crisis, provides further grounds for further debates.

This paper considers the most recent efforts which have been undertaken by various standard setters, international organisations and supervisory agencies to address crises which may trigger global and devastating consequences, and to consolidate capital, liquidity standards and macro prudential policy tools.

Keywords: Financial Stability Board, systemic risks, IMF, banks, capital requirements, liquidity standards, pro cyclicality, fiscal, monetary policies