Bangladesh Bank Training Academy Journal

Abstract

Strong debate exists regarding macroeconomic implications of the new bank regulatory standards on capital and liquidity, known as Basel III, issued by Basel Committee on Banking Supervision. Thispaper discusses the benefits, challenges, options and opportunities of implementing higher capital ratios and liquidity standards in the banking industry of Bangladesh. As discussed, benefits would stemfrom lower probability of banking crises emanatedfrom more stringent capital holdings while costs would be in the form of higher lending rates premia over deposit rates due to higher capital levels on aggregate output, reduced profitability, shadow banking possibility. We conclude that a rigorous quantitative impact study could be conducted before implementing the newframeworkfor increasing the resilience of the banking sector without impeding economic growth of Bangladesh.