Introduction to 'Basel III and Beyond'
The Big Financial Crisis
The Policy Response: From the G20 Requests to the FSB Roadmap; Working Towards the Proposals of the Basel Committee
The New Definition of Regulatory Capital
A New Framework for the Trading Book
Counterparty Credit Risk and Other Risk-Coverage Measures
Tools for Mitigating the Procyclicality of Financial Regulation
The Regulatory Leverage Ratio
The New Framework for Liquidity Risk
The Discipline of Credit Rating Agencies
Systemically Important Banks
Regulating Remuneration Schemes in Banking
Crisis Management and Resolution
The Impact of the New Regulatory Framework
A Brazilian Perspective on Basel III
A New Institutional Framework for Financial Regulation and Supervision
Structural Regulation Redux: The Volcker Rule
The Changing Uses of Contingent Capital under the Basel III Framework
This article was first published as a chapter in Basel III and Beyond on July 27, 2011, by Risk Books.
This chapter analyses the origins and dynamics of the financial crisis that erupted in 2007 and led to a deep rethinking of the regulatory framework at international level. The discussion focuses on both the financial practices that contributed to the financial turmoil and their macroeconomic context.
There are various estimates of the length of the financial crisis.11 For instance, the “heat map” produced by the International Monetary Fund (IMF) (2010b) shows that, in certain markets, the period of excessive price volatility (greater than nine standard deviations) continued since March 2007 until late 2010. The Bank for International Settlements (2009) identifies five stages of the crisis, covering from June 2007 to mid-March 2009. The Bank of England (2009a) report the key events of the crisis occurred between spring 2007 and summer 2009. This chapter defines the big financial crisis as the period from the first announcements of write-offs in subprime assets22 Subprime assets not only comprise mortgage loans to borrowers with poor or bad credit records but also securities