Basel III Implications on the Banking Industry in the Light of Charter Value Hypothesis

Abstract: This paper investigates how the adaptation of the new regulations of Base III will affect the banking industry and how the theoretical framework around charter value hypothesis can explain these changes. The empirical study has been based on performance analysis of four major European banks with the purpose of identifying the impact of the new regulations on their finances. The data used for this study is from banks’ financial statements and annual reports as well as the European Banking Authorities and the Basel Committee on Banking Supervision. The results show that the impact of Basel III on the banks considered in this paper varies significantly depending on the bank’s business model and activities prior to the financial crisis of 2008. Further, Basel III is considered to create a new environment for banking with regards to solvency and liquidity; however it is argued that the accord carries limitations in its approach to risk measurements and its ability to act as a prevention of excessive risk taking leading to financial instability.