Is Basel III a Panacea? Lessons from the Greek Sovereign Fiscal Crisis

In the period 2007-2009 the global economy faced the most severe crisis after the Great Recession of 1929. In the aftermath of the crisis a substantially revised version of Basel II, named Basel III, was proposed, introducing new, tighter capital adequacy and liquidity guidelines. Basel III constitutes the new basic embankment against a possible crisis in the future. The same period these discussions were taking place for the new global regulatory framework, the most severe sovereign debt crisis the country ever faced burst out in Greece. One of the main victims of the crisis is the country's banking sector which is sustaining great pressure in its profitability, volume of deposits and credit growth, amongst others. Having as a starting point the Greek banking sector and the effects of the fiscal crisis on it, this paper discusses the new Basel III guidelines and their possible implications in times of turmoil. The new framework can play a crucial role in deterring a new financial crisis; however it should not be regarded as a panacea for all the shortcomings of banking sectors.