Independent thesis Advanced level (degree of Master (One Year)), 10 credits / 15 HE credits
Financial crises, liberalization of financial markets, globalization and more and more sophisticated financial products necessitate appropriate regulations within the financial industry. Nowadays, ever-growing international trading is all the more linked to financial
institutions such as banks and insurance companies. But simultaneously, with the international operations, the range of relevant risks has increased enormously and the implementation of
new efficient regulations has become necessary. These regulations aim at improving risk management, in order to assure the solvability of these companies and therewith the financial stability of the whole economy. This should be achieved by the supervision models: BASEL II for banks and SOLVENCY II for insurances.
How far do these two supervision models influence the financial institutions and to what extent do they achieve to realize a more adequate risk management? These issues are to be discussed in our thesis.
The relevant risks for industries become conceptualized and both supervision models are presented. The presentation covers a development, objectives and a constitution of both models. Based on this, an analytical review of the models is performed to derive potential impacts and consequences for implementing companies and the financial sector, respectively.
A comparison of the respective objectives, developments, constitutions and impacts of BASEL II and SOLVENCY II provides an insight into potential future consequences of both models on financial institutions. The impacts of BASEL II will further be used to anticipate a few SOLVENCY II developments.
Concluding, it can be stated that both BASEL II and SOLVENCY II are able to handle the new complex risk environment with interconnections and overlappings of risks, if implemented internationally. However, this will be achieved only due to more complex,expensive, and time consuming risk valuation approaches. However, this will also more
adequately take into account the individual risk situation of the companies. Therefore, the Minimum Capital Requirements for both banks and insurances are most likely to decrease.
Both supervision models are also in line with the developments of IAS/IFRS.
A final consideration of impacts and developments provides a few recommendations and suggestions for regulators, banks and insurances.
Umeå: Handelshögskolan vid Umeå universitet , 2007. , 70 p.
Hassel, Lars, Dr. Lars G. Hassel