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UNIVERSIDAD COLEGIO MAYOR DE NUESTRA SEORA DEL ROSARIO

JURISPRUDENCE FACULTY
CLASS: INTERNATIONAL PUBLIC LAW
PROFESSOR: ENRIQUE PRIETO Estefania Ponce Duran
AUTHOR: SANTIAGO RESTREPO NICOLAS CARDOZO
THURSDAY 7 OF SEPTEMBER 2017

BASILEAS III AGREEMENTS

This text will explain how the Basel Committee on Banking Supervision (BCBS)1, an
international normative organism of cooperation in bank supervision matter,2 with the Basel
III and its policies have affected the international and the internal States economic system.
Because this set of rules establishes a series of principles, supervisions, sanctions, and ways of
acting of the banks and financial organism, in order to have a strengthening of the global
economy and eliminate the financial risk.3

For that reason, this work is going to be divide in seven chapters, the first one explain what is
the Basel Committee on Banking Supervision (BCBS), why this committee born, its functions,
characteristics, conformation, and members. The second, expose what is the financial system,
its risk, a systematic fall of the financial system, the forms of how could be prevented. The
third, will explain what the Basel III and its regulatory framework. The fourth, introduce a
historical background of the Basel agreements, taking into account Basel I and II. The fifth,
take in fact the multiple economic crisis that have led to the creation of the Basel agreement
and how this affected the international law. The sixth will expose the benefits and
disadvantages of applying the Basel III. On the seventh and final part, are argues that
determinate if the Basel III agreement of the BCBS helps to strengthen the global economy and
eliminate the financial risk.

1 The Commit has been denominated Basel Committee, by the city in which it is located.
2
(BCBS), 'Statuary Charter' (Basel Committee on Banking Supervision, 1974),
http://www.bis.org/bcbs/charter_es.pdf. Accessed 21 September 2017. ((BCBS), 2017)
3
Jara Buitrago, Eduardo. 'International trends recent in regulation and banking supervision' (Bank
Superintendence, Julio 2003)
https://www.superfinanciera.gov.co/SFCant/ComunicadosyPublicaciones/80web/archivos/EduardoJara.pdf
Accessed 21 September 2017. (Buitrago, 2017)

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It is important to clarify, that this topic is relevant, taking in to account that the financial system
is important, on the state international and national economy context. Because it has the
functions of channeled the savings to invest, and be generator of wealth and pay forms of a
nation. In addition, the advances of the intuitive markets and new forms that the society could
enrich itself, can lead to a financial instability.4

1. Basel Committee on Banking Supervision (BCBS):

The Basel Committee on Banking Supervision (BCBS), an international normative organism


of cooperation in bank supervision matter; acts to the fulfillment of its objectives of strengthen
the global economy, and prevent a systematic global economic fall.5

1.1. BCBS Foundation

According to the foundation, the BCBS emerged in 1974 due to an economic crisis, caused by
the closing of the BANKHAUS HERSTATT, on the Germany Colony. This event incurred an
important loss of foreign currency operations, about 200 million US, Dollar between the Chase
Manhattan of New York and the Germany bank, these circumstances cause a pay system
collapse in North America and the international financial system. 6 That is why, in the purpose
of reestablish the trust and the international financial system stability, the presidents of central
banks states of the G-10 makes the BCBS7, an organization that makes principles and norms
about a good practice in the financial frame shape.8

4 Ustariz Gonzalez, Luis Humberto, The Basel Committee and Bank Supervision, (Pontiff Javeriana University)
file:///C:/Users/ThinkPad/Downloads/14855-52560-1-SM.pdf Accessed 21 September 2017 (Gonzlez, 2017).
5
Ustariz Gonzalez, Luis Humberto, The Basel Committee and Bank Supervision, (Pontiff Javeriana University)
file:///C:/Users/ThinkPad/Downloads/14855-52560-1-SM.pdf Accessed 21 September 2017 (Gonzlez, 2017).
6 Ustariz Gonzalez, Luis Humberto, The Basel Committee and Bank Supervision, (Pontiff Javeriana University)

file:///C:/Users/ThinkPad/Downloads/14855-52560-1-SM.pdf Accessed 21 September 2017 (Gonzlez, 2017)


7 Jara Buitrago, Eduardo. 'International trends recent in regulation and banking supervision' (Bank

Superintendence, Julio 2003)


https://www.superfinanciera.gov.co/SFCant/ComunicadosyPublicaciones/80web/archivos/EduardoJara.pdf
Accessed 21 September 2017. (Buitrago, 2017)
8 (BCBS), 'Statuary Charter' (Basel Committee on Banking Supervision, 1974),

http://www.bis.org/bcbs/charter_es.pdf. Accessed 21 September 2017. ((BCBS), 2017)

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1.2. Members

Must be included, that the BCBS members are organism with powers of bank supervision and
central bank functions, from states of Europe, America, Asia, Oceania and Africa. As
Argentina, Australia, Belgium, Brazil, Canada, China, France, Germany, Hong Kong, India,
Indonesia, Italy, Japan, Luxembourg, Mexico, Netherlands, Singapore, Spain, United
Kingdom, United States , South Africa, Sweden, Switzerland and Turkey.9

Secondly, those members has the compromise, with this organization, according to the BCBS
statuary charter to: 10
1. Work together to fulfill the BCBS mandate
2. Promote financial stability
3. Continuously improve the quality of its banking regulation and supervision
4. Actively contribute to the development of BCBS standards, guidelines and good
practice
5. Implement and apply BCBS rules in its national jurisdiction2 within the time limit set
by the Committee
6. Submit to and participate in BCBS reviews to assess the compatibility and effectiveness
of national supervisory standards and practices with respect to BCBS standards
7. Work towards global financial stability, not only national interests, as well as
participate in the work and decision-making of BCBS.

1.3. Characteristics

In addition, the BCBS, dont has formal supranational powers, cause its decisions dont have
legal force, so this organization, depends on the members compromise and the cooperation
with other normative entities and public international organism of the financial sphere, for the
exercise of its functions.11

9 (SB), 'BCBS', (Spain Bank) https://www.bde.es/bde/es/areas/supervision/actividad/BCBS/BCBS.html


Accessed 21 September 2017. (Bank, 2017)
10 (BCBS), 'Statuary Charter' (Basel Committee on Banking Supervision, 1974),

http://www.bis.org/bcbs/charter_es.pdf. Accessed 21 September 2017. ((BCBS), 2017)


11 (BCBS), 'Statuary Charter' (Basel Committee on Banking Supervision, 1974),

http://www.bis.org/bcbs/charter_es.pdf. Accessed 21 September 2017. ((BCBS), 2017)

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1.4. Functions

In regards to the functions of this organism, the BCBS, could be grouped in three mainly areas
that are routed for the fulfillment of the BCBS objectives. According to Luis Humberto Ustariz
Gonzalez, those areas are first establish a space for discuses about problems of financial
supervision, second coordinate supervisory responsibilities, and third give supervision
standards.12

In addition, the core of the work undertaken by the Basel Committee focuses on the following
activities, according to the statuary charter.13
1. Exchange information on the evolution of the banking sector and the markets financial
instruments, in order to detect current or emerging risks for the financial world.
2. Share oversight issues, strategies and techniques to common understanding and
improving international cooperation.
3. Establish and promote international standards, guidelines and best practices in
regulation and banking supervision.
4. Addressing regulatory and supervisory gaps that pose risks to the financial stability
5. Monitor the application of BCBS rules in member countries and other countries, with
a view to ensuring its timely, uniform and effective implementation, and to the
promotion of a level playing field between banks with international relations.
6. Consultation with central banks and banking supervisory authorities should not BCBS
to consider their opinion in the policy formulation and to promote the implementation
of standards, guidelines and BCBS practices in non-member countries.
7. Coordinate and cooperate with other regulatory bodies and international organizations
of the financial sector, in particular those that promote financial stability.

Those that most outstanding are to exchange information, about the bank sector, and financial
markets, establish and promote international norms in pro of a stably financial system, and
supervise the application of the regulatory frame shape.14

12 Ustariz Gonzalez, Luis Humberto, The Basel Committee and Bank Supervision, (Pontiff Javeriana
University) file:///C:/Users/ThinkPad/Downloads/14855-52560-1-SM.pdf Accessed 21 September 2017
(Gonzlez, 2017).
13
(BCBS), 'Statuary Charter' (Basel Committee on Banking Supervision, 1974),
http://www.bis.org/bcbs/charter_es.pdf. Accessed 21 September 2017. ((BCBS), 2017)
14
(BCBS), 'Statuary Charter' (Basel Committee on Banking Supervision, 1974),
http://www.bis.org/bcbs/charter_es.pdf. Accessed 21 September 2017. ((BCBS), 2017)

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2. Financial system

The financial system is that set of institutions, markets, means and strategies, that has the
functions of channeled the savings to invest, and be generator of wealth and pay forms of a
nation.15 In addition, the financial law is a branch of public law, which seeks to protect the
financial system, instead of a set of rules to regulate it, in order to avoid a financial crisis caused
by a risk in this system.16

2.1. Financial Risk

Now, talking about the financial risk, this refers to the possibility of adversely affecting an
operation, an organization or the entire financial system.17 It should be add, that this possibility
is generate in the performance of an investment.18 Because the changes in the sector in which
it operates, coupled with the impossibility of repayment of capital and the instability of
financial markets, which are influence by the slightest change, generate this uncertainty in the
system.19

2.2. Systematic Fall of the financial system

According to David Shirreff in his book, Dealing whit financial risk, a systematic fall of the
financial system, or as he call it a systematic risk, is the adversity that affects all the authors,
markets and operations of the financial system, in few words, is the difficulty of all the financial
system.20

15
Jara Buitrago. Eduardo. THE INTERNATIONAL FINANCIAL CRISIS AND REFORMS IN
REGULATION AND BANKING SUPERVISION, (Huella digital, 2013, Pages 13 20) (Buitrago, THE
INTERNATIONAL FINANCIAL CRISIS AND REFORMS IN REGULATION AND BANKING
SUPERVISION, 2013).
16 Colegio Mayor de Nuestra Seora del Rosario, Contemporary financial law issues, (Universidad del rosario,

2006, Page 53) (jurisprudencia, 2006).


17 Shirreff. David, Dealing With Financial Risk, (The economist, Profile Books and Bloomerg Press, 2004,

Pages 16 -17 and 27) (Shirreff, 2004)


18 (BBVA), Financial Risk, (BBVA, 2015) https://www.bbva.com/es/finanzas-para-todos-el-riesgo-financiero-

y-sus-tipos/ Accessed 26 September 2017. (BBVA, 2017)


19 Shirreff. David, Dealing With Financial Risk, (The economist, Profile Books and Bloomerg Press, 2004,

Pages 30) (Shirreff, 2004)


20 Shirreff. David, Dealing With Financial Risk, (The economist, Profile Books and Bloomerg Press, 2004,

Pages 136-152) (Shirreff, 2004)

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2.3. How eliminate the financial risk

3. Basel III

Now, talking about Basel agreements, the BCBS, in exercise of its functions, develops a series
of guidelines, standards, principles, norms, and behavioral parameters, on the agreements
called Basel. In the human history are three Basel agreements, Basel I, Basel II, and Basel III,
each agreement emerged due an international historical financial crisis, and has the objective
of eliminate financial risk, strengthen the global economy, and help to the contact and
cooperation between the members of this organization and other supervision bank authorities.

Whit regard to the Basel III agreement, have been created for

mejorar la capacidad del sector bancario para absorber los choques derivados del estrs financiero y econmico,
cualquiera que sea la fuente
mejorar la gestin de riesgos y la gobernanza
fortalecer la transparencia y divulgacin de los bancos.
El objetivo de las reformas es:
a nivel bancario o microprudencial, lo que ayudar a elevar la resistencia de las instituciones bancarias individuales a
perodos de estrs.
macroprudenciales y de todo el sistema que pueden acumularse en todo el sector bancario, as como la amplificacin
procclica de estos riesgos a lo largo del tiempo.
Estos dos enfoques de supervisin son complementarios ya que una mayor resiliencia a nivel de banco individual
reduce el riesgo de shocks en todo el sistema.

3.1 basileas 3.1

El Comit de Supervisin Bancaria de Basilea ha concluido su revisin y finalizado el tratamiento de capital de Basilea
III para el riesgo de crdito de contraparte en operaciones bilaterales. La revisin result en una modificacin menor
del ajuste de valoracin crediticia (CVA), que es el riesgo de prdida causado por cambios en el diferencial de crdito
de una contraparte debido a cambios en su calidad crediticia (tambin conocido como el valor de mercado del crdito
de contraparte riesgo). Ver el comunicado de prensa relacionado .

3.2 basileas 3.2

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3.3 basileas 3.3

4. History:

In first term, taking into account that the Basel III is a set of rules that have been created to
prevent the economic crisis and he strengthen of the global economy. That could affected
international economic system, this is an advance between the worldwide banks and States that
were affected by this crisis during 2008:

In the aftermath of this crisis, world governments acted to reduce sys- temic risk in the
financial system by strengthening liquidity regulations. In December 2010, the Basel
Committee for Banking Supervision - a college of central bankers and other financial
regulators from the United States and other advanced economies - proposed new liquidity
requirements meant to promote the resilience of the banking sector.3 This Note examines one
of these new requirements: The Liquidity Coverage Ratio ("LCR"), the Basel Committee's
newly proposed minimum threshold for short-term

To fully understand Basel III we need to talk also about how and under which conditions were
Basel I and II created.
Basel I was first created in the early 1980s in which the Latin American economy cracked and
the international banks debt inside that countries was heightening enough to concern the
Financial Stability Board and the Basel Committee on Banking Supervision (now on BCBS),
this led to the creation of Basel I that consisted in:
were was strong recognition within the Committee of the overriding need for a multinational
accord to strengthen the stability of the international banking system and to remove a source
of competitive inequality arising from differences in national capital requirements. Following
comments on a consultative paper published in December 1987, a capital measurement system

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commonly referred to as the Basel Capital Accord was approved by the G10 Governors and
released to banks in July 1988.
The 1988 Accord called for a minimum ratio of capital to risk-weighted assets of 8% to be
implemented by the end of 1992. Ultimately, this framework was introduced not only in member
countries but also in virtually all countries with active international banks. In September 1993,
the Committee issued a statement confirming that G10 countries' banks with material
international banking business were meeting the minimum requirements set out in the Accord.

This first document, was basically imposed to avoid an international banking drop by the risk
that this providing companies of loan and credit, as banks reached to a slope without comeback.

The Basel II, was a document created in 2004 that was basically an amendment to the Basel I,
taking into account the advances not only in software, but also in the economic sphere. This
Amendment was stated over three main stages:

1. minimum capital requirements, which sought to develop and expand the standardised rules
set out in the 1988 Accord

2. supervisory review of an institution's capital adequacy and internal assessment process

3. effective use of disclosure as a lever to strengthen market discipline and encourage sound
banking practices.

These three pillars of the Basel II were related basically to the instructions given to each nation
or State member on how might be the regulation that has to be applied in each country, because
whereas there is certain international mechanisms to protect the banking situation worldwide,
there must be a domestic control to provide security to the nationals and avoiding an
intervention of foreign organizations as the BCBS.

Finally, we aboard the history of the Basel number 3 that even though it is explained in the
introduction is necessary in this point of the paper to clarify all the doubtable points and to
realize which were the needs and the regulation applied in this document.

The Basel III was created in 2010 after the crash of Lehman Brothers in 2008 and the high risk
of credit and financial liquidity that were given by the banks during May and July of 2008.

In September 2010, the Group of Governors and Heads of Supervision (GHOS) announced
higher global minimum capital standards for commercial banks. This followed an agreement
reached in July regarding the overall design of the capital and liquidity reform package, now
referred to as "Basel III". In November 2010, the new capital and liquidity standards were

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endorsed at the G20 Leaders' Summit in Seoul and subsequently agreed at the December 2010
Basel Committee meeting.

But this document was not finished, it was only up to 2015 when the BCBS and the G20 leaders
decided to implement some other characteristics to this amendment, as a matter of fact this
document was a framework amendment to the Basel number 2, these characteristics were given
based on the idea of micro-credits, low financial rate and the idea of strengthening the financial
body of the banks, and avoid another crash.

The minimum common equity and Tier 1 requirements increased from 2% and 4% to 3.5% and
4.5%, respectively, at the beginning of 2013.

The minimum common equity and Tier 1 requirements rose to 4% and 5.5%, respectively, at the
beginning of 2014.

The final requirements for common equity and Tier 1 capital were set at 4.5% and 6%,
respectively, at the beginning of 2015

This three mains points were the basis of the idea of avoiding the new bank crashed, and also
giving free will to each of the country members to impose different ratios that can be lower or
higher, to avoid the interruption of financial activities on these states

Bibliografy.

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The Basileas commit bank supervision (BCBS) Charter, Central bank of Spain.
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Ustariz Gonzalez. Luis Humberto, the Basileas commit bank supervision (BCBS),
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