Page 47 - Azerbaijan State University of Economics

THE JOURNAL OF ECONOMIC SCIENCES: THEORY AND PRACTICE, V.79, # 2, 2022, pp. 37-50

The objectives to be achieved with the regulation changes called Basel III can be
summarized as follows: (Cangürel et al., 2010).
Increasing the resilience of the banking system against financial and economic shocks,
regardless of their source,
Developing corporate governance and risk management practices,
Increasing the transparency of banks and their ability to provide information to the
public,
Increasing the resilience of individual banks through regulations made on a micro
basis,
Increasing the resilience of the financial system against shocks through regulations on
a macro basis.

RESULT

As a result of the proper functioning of the banking system, bank creditors have
serious confidence in the bank. Trust is very important for banking. Because in the
absence of trust, the bank can go from a stable state to an unstable state in a very short
period of time (Calomiris, 1991).

Although there is no ideal size for banks, every bank, from small to large, can be
exposed to its own risks. In addition, banking regulations are needed to minimize the
complexity of banks' legal structures. Regulators set rules to forcefully reduce the
complexity of banks (Eğmir & Sağbaş, 2021).

Capital requirements established in the context of the Basel Committee led to the
development of stronger competition in banking. The development of the capital
adequacy criterion ensures that banks are not exposed to more risks. In addition, this
rulemaking ensures ease of liquidity (Basel Committee on Banking Supervision,
2006).

Beginning in 2007, Basel II standards became mandatory for banks in European
Union (EU) countries (Augurzky et al., 2004). In the following years, a newer version
of the Basel III standards was developed and presented to market users.

With the start of Basel II implementation, the risk level of companies and the loan to
be used will directly affect the cost of the loan. At this point, the rating given to
companies by independent audit institutions and banks gains importance. The lower
the credit rating, the lower the bank will take on more risk, hold more capital in return,
thus depriving more of its resources of return. Finally, the cost of loans to be extended
to companies with low credit ratings will increase.

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