CHAPTER 14 Sukuk Issued as Regulatory Capital Instruments for Basel III Compliance – A Case Study

By Abdullah Haron

Basel III is a set of international banking regulations developed by the Bank for International Settlements in order to promote stability in the international financial system. Basel III builds on the Basel I and Basel II documents, and seeks to improve the banking sector's ability to deal with financial and economic stress, improve risk management and strengthen the banks' transparency and disclosures. In combination with other regulations, Basel III is expected to reduce the ability of banks, including Islamic banks, to damage the economy by taking on excess risk.

One of the reforms initiated by the Basel Committee on Banking Supervision (BCBS) is intended to strengthen the regulatory capital framework. Banks must hold more or higher quality capital than before in order to absorb losses on a going concern basis. This ensures the continuing ability of the banks to meet their obligations as they fall due, while also maintaining the confidence of customers, depositors, creditors and other stakeholders in their dealings with the banks. Capital requirements also seek to give further protection to depositors and other senior creditors in a ‘gone concern’ situation (i.e. at the point of non-viability) by providing an additional cushion of loss absorbency that can allow senior claims to be met in liquidation.

REGULATORY CAPITAL IN BASEL III AND IFSB-15

Basel III's ...

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