Jack Ma and The Basel Accords

Disclaimer: this post originally made by myself for discussion purpose only.

We all know that if recently Jack Ma has disappeared from the media. Everyone asking about him, where is he, our motivator in struggling to be a great human. Well, recently, in January 2021, Finally, Jack Ma has showing up himself in media to meet Vladimir Putin at Russian Geographical Society. What’s happened?

According to the source that I have read. In October 2020, Jack Ma actually has made a speech and talking about the financial system in his country and the world. It is called The Basel Accords. Beside of that, What is Basel Accords, why it is so popular and important? and even it seems like it can affect the person like Jack Ma?

Initially, The Basel Accords was formed by The Basel Committee for Bank Supervision in 1974 (Group of Ten Countries). The goal is to ensure banks hold enough cash reserves to meet their financial obligation and survive in financial and economic distress (credit risk and market risk). Basel Accords can be broken down into Basel 1, Basel 2, and Basel 3.

Basel 1, also known as Basel Capital Accord, was formed in 1988. It was created by the condition that the international banks were not carrying enough cash reserves. Basel 1 was enforced by law in Group of Ten Countries in 1992 but more than 100 countries implemented the regulations too with minor customization. The regulations goal is to make a stability of the financial system by setting up the minimum reserve requirements for international banks (holding up 8% of their risk-weighted assets as cash reserves).

Basel 2 was introduces in 2004 with some extensions from Basel 1. Basel 2 added standardized measures for credit, operational, and market risk by centering around into three key issues — minimum capital requirements, supervisory mechanisms and transparency, and market disciplines.

Basel 1 limitation was the minimum capital requirements were determined by looking at credit risk only, not for the operational and market risk. With new added standardized measures, Basel 2 can made the supervisory mechanisms and market transparency more effective by developing disclosure requirements to oversee regulations.

Basel 3 was created in 2010 after The Global Financial Crisis in 2008 happened to the international financial systems. But, Basel 3 not implemented yet, and expected to occur in in January 2022.

Basel 3 was created by the condition that including poor corporate governance and liquidity management, over-levered capital structures due to lack of regulatory restrictions, and misaligned incentives in Basel 1 and Basel 2. Basel 3 added some additions, there are various capital, leverage, and liquidity ratio requirements which were used to strengthened the minimum capital requirements outlined in Basel 1 and 2.

So, why Jack Ma talks about the Basel Accords? based on the source that I have read, Jack Ma told to the participant that Larger Bank is like a big lake, it needs pool, tributary, and small canal irrigation system, without these in ecosystem, flood and drought could always happened.

and he continued, financial system was created for the past, but for the future we need new technology such as big data, cloud, and blockchain. “Innovation always comes from risk, no risk no innovation”.

That’s all about my post, remember put your applaud and comment below and we can discuss each other, and let me know if I miss something. thank you

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