A Legal Assessment of the Implementation and Impact of Basel III on Banking Compliance in U.A.E

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ACKNOWLEDGEMENT

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DECLARATION

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Contents

ACKNOWLEDGEMENT1

DECLARATION2

Chapter 1 - The Emergence and Development of Basel Committee on Banking Supervision4

Background4

Introduction5

Basel III in Current Scenario7

Implementation of Basel I & II in UAE9

Basel II11

Capital Management & Banking In UAE under Basel III12

Major differences between Basel II and III14

Chapter 2- Methodology16

Chapter 3 - The Commitment of UAE Banks to Basel Standards18

Implementation of Basel II in UAE18

Shortcomings of Basel II19

Implementation of Basel III in UAE21

Impact of Basel III on UAE's Economy21

Qualitative Impacts of Basel III implementation on Banks and the Financial System22

The Major Challenges of Basel III23

Managing Basel III: Different Geographies, Different Issues23

Chapter 4- The Impact of Basel III on Banks in the UAE25

The Impact of Basel III on Bank Lending spreads in UAE27

The impact of Basel III on Investments29

The impact of Basel III on Islamic Banks and transition to Basel III33

Chapter 5- Conclusion38

Implementing Basel III Standards41

End Notes43

Bibliography48

Appendix52

Chapter 1 - The Emergence and Development of Basel Committee on Banking Supervision

Background

The implementation and assessment of Basel III on banking compliance in UAE has become a subject of great interest and controversy. Many studies have been conducted on the previously implemented Basel I and Basel II regulations. Their impacts and legal assessments have also been done accordingly. In the United Arab Emirates, the Basel III standards are being supervised and studied to ensure that no economical hiccups occur after its implementation.

The central bank of United Arab Emirates is working to prepare the local lenders in the country for new Basel III banking standards. The major economists in the country have decided that all domestic lenders must hold 10% of their liabilities in the form of liquid assets from the beginning of 2013. The economists at UAE's central bank are in agreement that high profile liquid assets suited to the new requirements include certificates of deposit, cash and governmental bonds with good ratings.

The newly sought ratios will be effective from January 1st, 2013. However, it is speculated that two years later a far more complex liquidity coverage ratio would be in place. This enhanced and complex LCR is expected to adhere as part of the new Basel III compliance.

Introduction

Basel III serves as a global regulation authority and sets the standards for market liquidity risk, capital adequacy and stress testing. The provisions of Basel III were agreed and signed by the members of the Basel Committee on Banking Supervision in 2010 and 2011. The application of Basel III would definitely bring some major changes to the ...