Value of β for different business sectors.
\r\n\t
",isbn:"978-1-83968-460-9",printIsbn:"978-1-83968-459-3",pdfIsbn:"978-1-83969-232-1",doi:null,price:0,priceEur:0,priceUsd:0,slug:null,numberOfPages:0,isOpenForSubmission:!0,hash:"babca2dea1c80719111734cc57a21a4c",bookSignature:"Dr. Amin Talei",publishedDate:null,coverURL:"https://cdn.intechopen.com/books/images_new/10404.jpg",keywords:"Water Budget, Ground Measurement, Satellite Data, Empirical Models, Physical Models, Data-Driven Models, Artificial Neural Network, Neuro-Fuzzy Systems, Genetic Programming, Irrigation Management, Drought, Aquifer Management",numberOfDownloads:null,numberOfWosCitations:0,numberOfCrossrefCitations:null,numberOfDimensionsCitations:null,numberOfTotalCitations:null,isAvailableForWebshopOrdering:!0,dateEndFirstStepPublish:"October 29th 2020",dateEndSecondStepPublish:"November 26th 2020",dateEndThirdStepPublish:"January 25th 2021",dateEndFourthStepPublish:"April 15th 2021",dateEndFifthStepPublish:"June 14th 2021",remainingDaysToSecondStep:"2 months",secondStepPassed:!0,currentStepOfPublishingProcess:3,editedByType:null,kuFlag:!1,biosketch:"A pioneering researcher in developing hydrological models using adaptive neuro-fuzzy systems, a pioneering researcher in tropical biofiltration systems, appointed head of the Civil Engineering Discipline in Monash University Malaysia.",coeditorOneBiosketch:null,coeditorTwoBiosketch:null,coeditorThreeBiosketch:null,coeditorFourBiosketch:null,coeditorFiveBiosketch:null,editors:[{id:"335732",title:"Dr.",name:"Amin",middleName:null,surname:"Talei",slug:"amin-talei",fullName:"Amin Talei",profilePictureURL:"https://mts.intechopen.com/storage/users/335732/images/system/335732.jpg",biography:"Associate Professor Amin Talei joined Monash University Malaysia in January 2013 and currently is the head of Civil Engineering discipline. His previous appointment was as researcher in School of Civil & Environmental Engineering of Nanyang Technological University of Singapore where he studied for his PhD during 2008-2011. His research is predominantly focused on hydrological modeling and flood forecasting using artificial intelligence techniques. Most recently, he has been also involved in research projects dealing with sustainable urban water management. To date, he has published over 50 articles in reputable journals and international conference proceedings. He has supervised several PhD and Master students and won the Supervisor of the Year Award in Monash University Malaysia in 2017. 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Venkateswarlu",coverURL:"https://cdn.intechopen.com/books/images_new/371.jpg",editedByType:"Edited by",editors:[{id:"58592",title:"Dr.",name:"Arun",surname:"Shanker",slug:"arun-shanker",fullName:"Arun Shanker"}],productType:{id:"1",chapterContentType:"chapter",authoredCaption:"Edited by"}},{type:"book",id:"878",title:"Phytochemicals",subtitle:"A Global Perspective of Their Role in Nutrition and Health",isOpenForSubmission:!1,hash:"ec77671f63975ef2d16192897deb6835",slug:"phytochemicals-a-global-perspective-of-their-role-in-nutrition-and-health",bookSignature:"Venketeshwer Rao",coverURL:"https://cdn.intechopen.com/books/images_new/878.jpg",editedByType:"Edited by",editors:[{id:"82663",title:"Dr.",name:"Venketeshwer",surname:"Rao",slug:"venketeshwer-rao",fullName:"Venketeshwer Rao"}],productType:{id:"1",chapterContentType:"chapter",authoredCaption:"Edited by"}},{type:"book",id:"4816",title:"Face Recognition",subtitle:null,isOpenForSubmission:!1,hash:"146063b5359146b7718ea86bad47c8eb",slug:"face_recognition",bookSignature:"Kresimir Delac and Mislav Grgic",coverURL:"https://cdn.intechopen.com/books/images_new/4816.jpg",editedByType:"Edited by",editors:[{id:"528",title:"Dr.",name:"Kresimir",surname:"Delac",slug:"kresimir-delac",fullName:"Kresimir Delac"}],productType:{id:"1",chapterContentType:"chapter",authoredCaption:"Edited by"}}]},chapter:{item:{type:"chapter",id:"53180",title:"Phenolic Compounds with Anti-virulence Properties",doi:"10.5772/66367",slug:"phenolic-compounds-with-anti-virulence-properties",body:'\nSince their introduction in the middle forties, antibiotics had been extensively used for the treatment of infectious diseases, producing remarkable results and saving millions of lives worldwide [1]; nevertheless, bacteria are very dynamic organisms able to interchange genes by several mechanisms including conjugation, transformation and transfection via bacteriophages [1]. In addition, they usually replicate at high rates and hence have the ability to evolve quickly and adapt to strong selective pressures; this combined with the self-prescription, inadequate prescription by some physicians (e.g., to treat viral diseases) and their improper use by patients who do not complete the recommended treatment scheme has derived in an alarming situation since to date antibiotic resistance (including multiresistance and panresistance) is a common trend in most of hospital-acquired infections and is becoming more common in community-acquired ones [2, 3]. In fact, the situation is so delicate that recently, the OMS warned that if the current trends are still observed, then by the year 2050 we will enter the post-antibiotic era and previously treatable infectious diseases will cause more deaths than other important diseases such as cancer [4].
\nHence, the discovery of new antibiotics as well as the development of alternative approaches to combat bacterial infections is urgently needed [5]; among such new approaches are the inhibition of bacterial antibiotic resistance mechanisms, the utilization of non-antibiotic bactericide agents such as bacteriophages, the repurposing of clinically approved drugs, and the inhibition of bacterial virulence [5]. For the first approach, already successful examples can be found in the clinic; by instance, the co-utilization of clavulanic acid (an inhibitor of β-lactamases) and amoxicillin is commonly administrated [6]; and current research is focused on the utilization of broad spectrum anti-resistance compounds such as those inhibiting multidrug efflux pumps [7]. Regarding the second approach, it was recently demonstrated that some anticancer drugs such as 5-fluorouracil [8], mitomycin C [9] and cisplatin [10] have remarkable antibacterial properties, while bacteriophages had been used in east European countries for the treatment of diverse bacterial infections, and currently, its utilization in the occidental medicine is being proposed [11, 12]. Finally, targeting bacterial virulence instead of their viability is a concept that had derived in several publications, mostly centered in the inhibition of master virulence regulators such as quorum-sensing (QS) systems, which allow several Gram-negative and Gram-positive bacteria to coordinate the production of several virulence factors, once a high population density is reached (Figure 1A). Indeed, initially, it was claimed that this approach will be impervious to the generation of resistance since in vitro in rich media QS does not control metabolic processes linked to growth; nevertheless, in some conditions, QS inhibition can promote resistance [13–15] and not all clinical strains are sensitive toward current QS inhibitors [16]. However, since QS also regulates the stress response, it has been shown that QS-inhibited bacteria are more susceptible to the action of disinfectants, antibiotics and the immune system [17, 18], and hence, QS inhibition may be a valuable adjuvant therapy for recalcitrant bacterial infections [15].
Main targets of anti-virulence of phenolic compounds. A: Quorum-sensing system, B: biofilm formation, C: toxins, D: two-component systems, E: curli fibers, F: bacterial type III secretion systems, G: flagellum, H: fimbriae, I: sortase enzymes.
As mentioned previously, QS is a master regulator of the production of several bacterial virulence factors, such as: exoproteases that degrade connective tissue such as elastase and alkaline protease (collagenase), phenazines that promote the generation of reactive oxygen species, siderophores that facilitate iron uptake, toxins that disrupt cellular processes and exopolysaccharides that form phagocytosis-resistant capsules and participate in the generation of the biofilm matrix [19] (Figure 1C).
\nAnother key factor for the development of chronic infections and colonization of surfaces is the formation of biofilms, which is the main way the bacteria are found in nature [20]. These structures consist of multicellular communities enclosed in a matrix which makes them extremely resistant to antibacterial agents (Figure 1B) [21]. They also provide robust niches that allow the bacteria to protect themselves from environmental fluctuations and against the immune system, which drastically reduces the effectiveness of antimicrobial therapy [20].
\nSince for many pathogenic bacteria QS is the main regulator of expression of bacterial virulence factors [19], its disruption has been the main anti-virulence strategy investigated to date [19]. However, another alternative that has also been reported is the direct inhibition of individualvirulence factors, such as toxins, response regulators (two-component regulatory systems (TCS) and processes involved in the formation and maturation of structures such as the curli, the bacterial type III secretion system (T3SS), fimbriae and flagellum.
\nTCS are response regulators which are formed by a protein localized in the cytoplasmic membrane called histidine kinase sensory protein (HKSP), which acts as an environmental sensor that is activated in ATP-dependent way (Figure 1D) [22]. HKSP then activates a response regulator protein (RRP) found in the cytoplasm which is responsible for recognizing DNA sequences that modulate the expression of genes involved in various functions such as chemotaxis, porin expression and expression of virulence factors among others (Figure 1D) [22]. An important feature is that TCRs have not detected in mammalian cells, so there are a suitable specific target to treat bacterial infections [23].
\nThe curli (Figure 1E) is the major protein component of the extracellular matrix and is mainly produced by enterobacteria to aid in the formation of three-dimensional structures such as biofilms [24]. Curli fibers belong to a growing class of fibers known as amyloid fibers, which are also involved in host cell adhesion and invasion, and are also strong inducers of host inflammatory response [24]. The structure and biogenesis of curli are unique among bacterial fibers and represent an excellent anti-virulence target [25].
\nThe type III secretion system (T3SS) also known as the injectisome is a multiprotein apparatus that facilitates the secretion and translocation of toxins or effector proteins from the bacterial cytoplasm directly to eukaryotic cells (Figure 1F) [26, 27]. It is highly conserved in most Gram-negative pathogens, but its presence is not a necessary condition for bacterial survival in vitro [27].
\nMotility and recognition surfaces are key factors for the dispersal and colonization of new niches by bacteria [28]. For that, the flagellum and the fimbriae are target structures suitable for anti-virulence molecules [28, 29]. The flagella (Figure 1G) are multiprotein complexes based on flagellin, which rotate allowing bacterial displacement in aqueous media [29], while fimbriae (Figure 1H) are extracellular protein structures mainly constituted by pilin, which start in the plasma membrane, cross the cell wall and extend around the cell. These structures allow the adhesion of bacteria mainly to epithelial cells [30].
\nAnother important virulence factors are the sortase enzymes (cysteine transpeptidases) (Figure 1I), which are used by Gram-positive bacteria to display proteins in cell surface, such as glycoproteins [30], and they can also attach to proteins in the cross-bridge peptide of the cell wall or link other proteins together to form pilin [31]. The phenomenon of protein deployment is essential for the development of virulence factors and promotes nutrient acquisition, adhesion and immune system evasion [30]. Because surface proteins play a fundamental role in microbial physiology and are frequently virulence factors, sortase enzymes are a very important target [31].
\nReports related to the study of natural products as anti-virulence molecules had increased in the last decade. Their powerful attack against bacterial infections without promoting resistance and the elimination of antibiotic-resistant strains are the most attractive features of this kind of compounds. Among natural products with anti-virulence activity, those derived from plants with anti-QS and antibiofilm activity are the most common [32]. Phenolic compounds are secondary metabolites present in plants, which are crucial in many aspects of their lives, especially during the interactions with the environment, since they are used in the defense of plants against bacterial pathogens. Similarly, compounds of phenolic type are the major metabolites with anti-virulence properties described so far, and specifically, the flavonoids are the main representatives [33].
\nMost of the biologically active reported phenolic compounds have chemical structures with previously identified antimicrobial, antioxidant and anticancer activity. Similarly, for some of them their participation in the regulation of various physiological functions in plants and animals is well known. In recent years, the anti-virulence properties of phenolic compounds are being unravel, and most of the cases depend on the compound concentration and the bacterial system in which the phenolic compounds can exhibit bactericidal or anti-virulence effects. In the next chapter, we discuss studies of phenolic compounds derived mainly from plant species, starting with those that are better characterized and that have more anti-virulence reported properties. We focus on the relationship between their structures and their activity.
It is well documented that this kind of compounds has antimicrobial, antioxidant, anti-inflammatory, hypocholesterolemic and cancer-preventive properties [34, 35]. The epigallocatechin gallate (EGCG) (Figure 2A) is one of the flavonoids with the largest number of reports related to its antibiofilm activity; remarkably high compound doses can inhibit bacterial growth, but sublethal concentrations exhibit anti-virulence properties.
Epigallocatechin gallate and related compounds with anti-virulence properties. A: Epigallocatechin gallate, B: catechin, C: catechin-gallate, D: catechin-gallate, E: (−) epicatechin gallate.
At the same concentration, catechin (Figure 2B) and EGCG inhibit the formation of biofilms of P. aeruginosa; however, only catechin do not affect the growth [36], so the presence of galloyl group in EGCG seems to favor the bactericidal effect. In this regard, it is suggested that EGCG affect the viability because it binds to peptidoglycan, hence directly disrupting the integrity of the bacterial cell wall. Similarly, EGCG at concentrations that affect bacterial viability inhibit the biofilm of Enterococcus faecalis, an opportunistic pathogen implicated in urinary tract infections, endocarditis and root canal infections [37]. In this case, biofilm inhibition is attributed to a bactericidal effect, where the EGCG induces hydroxyl radicals that can damage DNA, proteins and lipids [37].
\nHowever, using sublethal concentrations, it has been found that EGCG significantly decreased the expression of virulence genes that regulate the expression of cytolysins, gelatinase and serine protease in E. faecalis [37]. It also inhibits biofilm formation of Staphylococcal isolates by interfering directly with polysaccharides of the glycocalyx [38]. Similarly, it inhibits swarming and biofilm formation of Burkholderia cepacia without affecting the growth, likely through QS inhibition [39].
\nEGCG and catechin gallate (Figure 2C) directly inhibit the anthrax lethal factor (LF) produced by Bacillus anthracis, which has a key role in the development of anthrax [40]. LF is a zinc metalloprotease that directly affects MAPK-signaling kinases, which are essential for transmitting signals in eukaryotes. EGCG and catechin gallate block the activity of LF, preventing MAPK-kinases cleavage and macrophages death [40]. In the case of EGCG, it also delays the death of mice exposed to the anthrax toxin [40]. It is noteworthy that although other catechins were evaluated, the presence of a galloyl group in the structure seems to be essential for this anti-virulence activity.
\nFor the case of catechin (Figure 2B), it has also been reported that it inhibits the production of virulence factors regulated by QS in P. aeruginosa, such as pyocyanin and elastase [41]. Also, it was found to have a negative impact on the transcription of several genes involved in QS, such as those codifying proteins involved in the synthesis of autoinducer molecules [41].
\nDental plaque is a complex biofilm that allows the survival and development of Streptococcus mutans. It has been reported that EGCG shows bactericidal activity against S. mutans; in addition, its antibiofilm activity is due to reducing the adherence of bacteria to surfaces by direct inhibition of glucosyltransferases [42], which are enzymes that synthesize polysaccharides [43, 44]. However, at sublethal concentrations, EGCG reduces biofilm by interfering with gene regulation, specifically by inhibiting the expression of the gtf genes (encoding glucosyltransferases), which are associated with adhesion and formation of biofilms [45]. Moreover, it represses genes encoding virulence factors associated with acidogenicity and acidurity, such as ldh, eno, dATP, Agud and the activity of the F₁F₀-ATPase and lactate dehydrogenase [42].
\nEGCG at sublethal concentrations also inhibits motility and biofilm formation of Campylobacter jejuni, a foodborne pathogen which is one of the main causes of gastrointestinal infections worldwide [46]. In this case, the mechanism involved in biofilm inhibition is related to QS inhibition [46].
\nIt is worth noting that to date there are no studies to investigate its structure-activity relationship, so it is not yet known which parts of the structure are critical to their anti-virulence effects. However, for the (−) epicatechin (Figure 2D) which also possesses anti-QS activity against Chromobacterium violaceum, a Gram-negative bacteria with AHLs mediated QS [47]. The (−) epicatechin gallate (Figure 2E) at sublethal concentrations inhibits two of the major determinants of virulence in S. aureus, the α-toxin and the coagulase [48]. Furthermore, it has been shown that in combination with β-lactams, it is efficient to eliminate multiresistant strains of S. aureus. Although it has been observed that some synthetic analogs have better pharmacokinetic properties than the native (−) epicatechin gallate [49, 50].
Cinnamaldehyde (CN) (Figure 3A) is a major constituent of cinnamon essential oils and occurs naturally in the bark and leaves of cinnamon trees of the genus Cinnamomum [51]. The antimicrobial activity of this compound has been proven [52, 53], but new studies have explored their anti-virulence properties, and in contrast to another compounds, it is considered a nontoxic substance widely used in food and in the cosmetic industry and their use is generally recognized as safe [54].
Cinnamaldehyde and related compounds with anti-virulence properties. A: Cinnamaldehyde, B: 2-nitro-cinnamaldehyde, C: 4-methoxy-cinnamaldehyde, D: 3,4-dichloro-cinnamaldehyde, E: (E)-4-phenyl-3-buten-2-one, F: (E)-3-decen-2-one, G: 4N-4-nitrocinnamaldehyde, H: 4D-4-dimethylaminocinnamaldehyde, I: caffeic acid, J: ferulic acid, K: p-coumaric acid, L: TS027, M: TS110, N: 4-methoxy-cinnamic acid, O: trans-2-methoxy-cinnamic acid.
In P. aeruginosa, the acylated homoserine lactones (AHLs) are their main autoinducer molecules (Figure 1A) and the CN can inhibit their synthesis as well as the production of the phenazine, pyocyanin and swarming motility [55]. Remarkably, CN also has antitoxin production and anti-hemolytic activities [56]. Similarly, in C. violaceum, Yersinia entrerolitica and Erwinia carotovora, the concentration of AHLs was also reduced by CN and the mechanism proposed was the inhibition of synthesis or degradation transformation of the autoinducer [57].
\nThe antibiofilm properties of CN have been widely documented; for example, in P. aeruginosa and in enterohemorrhagic Escherichia coli, this compound markedly abolished the biofilm formation in a dose-dependent manner by reducing the swarming motility and fimbriae production, respectively. In a previous report, it was shown that for the uropathogenic E. coli, CN prevented biofilm formation on plates and catheters, furthermore effectively inactivated preformed biofilms [54]. The mechanism proposed for the biofilm inhibition was related to the hydrophobicity of this compound, which helps to target lipids located in the bacterial cell membrane and mitochondria, increasing the membrane permeability, leading to the leakage of ions and other cell contents [54, 58]. The foodborne pathogen Listeria monocytogenes forms biofilm for persistence and survives in which CN has inhibitory effect on formation and inactivating mature biofilm by means of the down-regulated critical genes for biofilm formation in this bacteria [59].
\nIn Vibrio harveyi, the autoinducer-2 (A2) is also blocked by CN in a concentration-dependent way by decreasing the binding ability of the autoinducer to its response regulator protein. Between cinnamaldehyde derivatives, the 2-nitro-cinnamaldehyde (Figure 3B) was the most active compound yielding an inhibition of A2 similar to CN [60]. Similarly, the 2-nitro-cinnamaldehyde and 4-methoxy-cinnamaldehyde (Figure 3C) inhibit pigment production and protease activity in Vibrio anguillarum [60]. The CN is an aromatic carboxylic acid, and its inhibitory was highly dependent on the substitution pattern of the aromatic ring. Replacement of the dimethylamine (Me2N) substituent with a methoxy (MeO) or a nitro (NO2) group enhanced the activity [60].
\nVarious cinnamaldehyde analogs were also evaluated against Vibrio spp. The most active compounds were 2-nitro-cinnamaldehyde, 3, 4-dichloro-cinnamaldehyde (Figure 3D), (E)-4-phenyl-3-buten-2-one (Figure 3E) and (E)-3-decen-2-one (Figure 3F), which show inhibitory activity in A2, bioluminescence, pigment and protease production [61]. In this case, also the inhibitory effect of cinnamaldehyde analogs was dependent on the structure, and analogs in which the aromatic ring was replaced by an alkyl moiety, but which still contain the acrolein group, proved also to be active inhibitors [61]. In general, the inhibitory effect of cinnamaldehyde analogs is highly dependent on the nature and degree of substitution of the aromatic ring, and the substituents with electron-withdrawing properties increase its activity. The CN and their analogs furthermore proved to be active blockers of virulence in vivo in different models, suggesting that they may have potential for therapeutic applications in humans and animals [61].
\nThe CN also has inhibitory activity on biofilm formation in a methicillin-resistant Staphylococcus aureus at dose-dependent manner and represses the expression of sarA, a gene implicated in the regulation of its biofilm [51]. In Streptococcus pyogenes, when the biofilm was treated with CN and their derivatives the 2-nitro-cinnamaldehyde (Figure 3B), 4N-4-nitrocinnamaldehyde (Figure 3G) and 4D-4-dimethylaminocinnamaldehyde (Figure 3H), the biomass, average thickness and colony size at substratum were decreased and the molecular docking shows sequence and structure similarity with the active site for QS inhibition [62].
\nAmong the cinnamaldehyde-related molecules, the caffeic acid (CA) (Figure 3I) and ferulic acid (FA) (Figure 3J) have shown antibiofilm properties. CA is the first phenolic acid compound that has been reported to have inhibitory activity on biofilm formation in Staphylococcus epidermis by a mechanism that did not involve bacterial death [63]. The potential of FA to control biofilm formation has been demonstrated by the reduction in mass and metabolic activity in Escherichia coli and Listeria monocytogenes biofilms, and also this compound caused the total inhibition of motility in both bacteria and the colony spreading in S. aureus; a form of passive bacterial movement was also inhibited [64].
\nThe QS inhibitory activity of CA and FA also was evaluated in C. violaceum, and the results revealed that the activity was mediated by their ability to modulate AHL activity and synthesis [47]. Other related compound the p-coumaric acid (Figure 3K) showed QS inhibition in reporter strains like C. violaceum, Agrobacterium tumefaciens and Pseudomonas chlororaphis [65]. In addition, it represses the expression of regulatory genes of the T3SS of the phytopathogenic bacteria Dickeya dadantti, and for this activity, its hydroxyl group on the phenyl ring and the double bond are important [66]. Some of their derivatives such as TS027 (Figure 3L) and TS110 (Figure 3M) also repress the expression of T3SS regulatory genes and inhibit T3 effector protein in P. aeruginosa without affecting its growth [67]. While the cinnamic acid and 4-methoxy-cinnamic acid (Figure 3N) suppress the expression of T3SS in Erwinia amylovora [68], the o-coumaric acid (isomer of 3M) and trans-2-methoxy-cinnamic acid (Figure 3O) suppress translocation of two effector proteins of T3SS in Xanthomonas oryzae [69].
The coumarins are compounds that have caused great interest for their pharmacological properties such as anti-inflammatory, antitumor, antioxidant and bactericidal activity [70]. Moreover, recently it has also documented that they possess anti-virulence properties. The coumarin (Figure 4A) and umbelliferone (Figure 4B) inhibit biofilm formation of E. coli, without affecting its growth. By a transcriptional analysis, it was identified that these phenols act by repressing genes related to curli production and motility, which causes a decrease in the production of fimbriae and swarming [71]. For these molecules, the hydroxylation of coumarin is an important determinant for their antibiofilm activity, since the position of hydroxyl groups as well as their number affects the antibiofilm compound activity [71].
Coumarin and related compounds with anti-virulence properties. A: Coumarin, B: umbelliferone, C: dihydroxybergamottin, D: bergamottin.
Similarly, the presence of characteristic functional groups promotes the effective inhibition of virulence factors, as in the case of the furocoumarins [72], dihydroxybergamottin (Figure 4C) and bergamottin (Figure 4D), which exhibit anti-quorum-sensing effect on the AI-1 and AI-2 systems in Vibrio harveyi. Similarly, these furocoumarins inhibit biofilm formation of E. coli, V. harveyi, Salmonella typhimurium and P. aeruginosa without affecting bacterial growth. Although their mechanism of action is unknown, it is suggested that the presence of a furan residue could be acting as a competitive inhibitor for binding with the receptor protein of natural bacterial autoinducers [72].
The major constituent of turmeric (Curcuma longa L.) roots/rhizomes is the curcumin (CUR) (Figure 5A), which is an active compound that showed an important antimicrobial activity [73, 74], but several studies also corroborate their inhibitory activity against virulence factors in pathogenic bacteria.
Curcumin and related compounds with anti-virulence properties. A: Curcumin, B: demethoxycurcumin, C: bisdemethoxycurcumin.
The secretion of sortase A (SrtA) a surface protein in S. aureus involved in bacterial adhesion for pathogenesis was inhibited by CUR, and also on in vivo assays, this compound reduces the capacity of bacteria to adhere to surfaces in a dose-dependent manner [75]. The other derivatives present in turmeric extract are demethoxycurcumin (Figure 5B) and bisdemethoxycurcumin (Figure 5C), which show inhibitory activity of SrtA [75]. Similarly, in Streptococcus mutans CUR inhibited the activity of SrtA and other proteins implicated in bacterial adhesion reducing the biofilm formation in this bacteria [76, 77]. The diverse biological properties of CUR and its derivatives are attributed to the hydroxyl and phenol groups in the molecule [78], and structure-activity relationship studies suggest that a hydroxy group at the para-position is most critical for the expression of biological activity in these compounds [79].
\nThe antibiofilm activity of CUR against uropathogens such as E. coli, Proteus mirabilis and Serratia marcescens was evaluated, and the results showed that their biofilm maturation was disturbed by a biomass reduction and by the interruption of swimming motility [80]. In clinical isolates of Klebsiella pneumoniae, the treatment with CUR was also effective for biofilm inhibition [81] as well in enterohemorrhagic E. coli [82]. In the same way, in Vibrio spp. the inhibitory effect on biofilm formation with the CUR treatment depends on the disruption of the maturation of biofilms and in the reduction of swimming and swarming motility. Further, this compound significantly represses other virulence factors like alginate and exopolysaccharide production and also inhibits bioluminescence. These inhibitory effects were also demonstrated on in vivo models in which CUR enhanced the survival rate of Artemia nauplii against Vibrio harveyi [83].
\nDiverse virulence factors in P. aeruginosa were inhibited by CUR, specifically the elastase, protease and pyocyanin production without affecting bacterial growth in a dose-dependent manner. The biofilm inhibition effect was demonstrated in vivo using Arabidopsis thaliana, where the treatment with CUR caused a reduction in the plant mortality by suppressing biofilm formation [84]. In the pathogenicity model using Caenorhabditis elegans, CUR demonstrate their anti-infective properties by reducing the nematode mortality [84]. Additionally, in P. aeruginosa and C. violaceum, CUR showed an anti-quorum sensing activity by inhibiting the production of acyl homoserine lactones [84].
Eugenol (EG) (Figure 6A) is a major component of clove oil that possesses various biological properties [85], and their anti-virulence activity also has been evaluated. In pathogenic bacteria that secreted a broad spectrum of virulence factors that contribute to their pathogenicity, EG showed inhibitory activity. For example, in the nosocomial pathogen S. aureus, the hemolysin, staphyloxanthin, toxic shock syndrome toxin 1 (TSST-1) and enterotoxins are the most important virulence factors that were remarkably affected by EG [85]. The expression of virulence-related genes (sea, seb, tst and hla) was also decreased after the treatment with this compound [85].
Eugenol and related compounds with anti-virulence properties. A: Eugenol, B: eugenyl acetate, C: isoeugenol, D: methyl eugenol.
In a methicillin-resistant (MRSA) and methicillin-sensitive (MSSA) S. aureus at subinhibitory concentration, EG eradicates pre-established biofilms and inhibited the colonization of this bacteria in a rat middle ear model, decreasing biofilm in biomass, cell viability and the expression of biofilm-related genes (icaD, sarA and seA), resulting in a low accumulation of polysaccharides and poorly adhesion of cells within biofilms [86]. The biofilm eradication effect of EG was mediated by two mechanisms: bacterial lysis within biofilms and by the disruption of cell-to-cell connections, hence dismantling the biofilm organization, which can be attributed to the hydrophobic and the lipophilic nature of their chemical structure [86].
\nThe biofilm formation and biofilm-related genes in L. monocytogenes and E. coli also were inhibited by EG at dose-dependent manner [56, 59]. In P. aeruginosa, although EG was unable to inhibit biofilm formation, it markedly reduced the production of pyocyanin, fimbriae production, hemolytic activity and other QS-controlled virulence factors in this bacterium such as the pseudomonas quinolone signal (PQS) [56]. Other study showed that EG at subinhibitory concentrations has QS inhibitory activity in P. aeruginosa and C. violaceum [87].
\nMoreover, derivatives of EG eugenyl acetate (EA) (Figure 6B), isoeugenol (IE) (Figure 6C) and methyl eugenol (ME) (Figure 6D) showed anti-virulence properties against pathogenic bacteria. In S. aureus, EA inhibited the production of virulence factors like hemolysin and staphyloxanthin. Similarly, in P. aeruginosa the pyocyanin, pyoverdin and exoprotease production were significantly reduced after the treatment with EA, and it also exhibited QS inhibitory potential in C. violaceum [88]. The other derivatives, IE and ME, also presented QS inhibitory against P. aeruginosa and C. violaceum [89, 90], and in the case of V. harveyi, ME have anti-bioluminescence activity [90]. These anti-virulence properties can be attributable to the presence of numerous substituted aromatic molecules like in the case of other phenols [85].
Long-chain phenols are a group of metabolites which have extensively studied antitumor, antimicrobial and antioxidant activities; they are also of great interest to the industry because they are used to manufacture different chemicals [91]. Also, different long-chain phenols reported have different anti-virulence properties.
\nOur research group identified a mixture of four anacardic acids (AA) capable of inhibiting QS in C. violaceum and also able to reduce the production of virulence factors such as pyocyanin, rhamnolipids and elastase activity in P. aeruginosa [92]. Similarly, another mixture of AA (Figure 7A) and one of cardanols (Figure 7B) was capable of inhibiting P. aeruginosa biofilms. Notably, although the antibiofilm mechanism is not known, the polymerization of the AA (Figure 7C) slightly potentiates the activity [36]. Similarly, the maximum antibiofilm activity observed for this phenol was around 80% inhibition, which is reduced to 50% by the presence of a carboxyl group (salicylic acid) and only increases with the addition of an alkyl chain [36]. Hence, the incorporation of different types of alkyl chain in the meta-position of the salicylic acid seems to play a role in its activity, but this needs to be investigated in more detail.
Long-chain phenols with anti-virulence properties. A: Anacardic acid mixture, B: cardanol mixture, C: polyanacardic acid, D: ginkgolic acids C15:1, E: 6-oxa isosteres of anacardic acids.
Similarly, the antibiofilm activity of gingolic acids was reported, specifically the C15:1 (Figure 7D) abolished biofilm production without affecting bacterial viability, as well as reduced fimbriae production in enterohemorrhagic E. coli [93]. Transcriptomic analysis by DNA microarrays and qRT-PCR demonstrated that C15: 1 represses expression of genes involved in the synthesis of curli [93].
\nFurthermore, although mixtures of such compounds have shown anti-virulence activity, separation is laborious and costly, so their chemical syntheses become an attractive alternative. In this regard, AA synthetic (6-oxa isosteres) C: 11-C: 16 (Figure 7E) showed inhibition of TCS (KinA/SpoOF and NRII/NRI) [94]. Interestingly, AA with alkyl chains outside this range are not active [94]. Likewise, for this activity, the presence of the carboxyl group is important, as the C:12 and C:14 completely lose their effect, and the presence of phenolic OH partially restores it. Long-chain phenols are a group of natural products with great structural diversity, which represent an important potential source of molecules with anti-virulence activity.
Various biological activities including anti-cancer, antibacterial, hepatoprotective, anti-inflammatory and antiviral activities have been attributed to flavonoids [95]; moreover, recent studies have shown that various flavonoids also have anti-virulence activity.
\nFlavonoids like flavone (Figure 8A), quercetin (Figure 8B), apigenin (Figure 8C) and fisetin (Figure 8D) decrease blood hemolysis induced by S. aureus. Specifically, for flavone it was elucidated that its activity is due the repression of the transcription of α-hemolysin genes (hla) and the global regulator gene (Sae) [96].
Quercetin and related compounds with anti-virulence properties. A: Flavone, B: quercetin, C: apigenin, D: fisetin, E: chrysin, F: kaempferol, G: morin, H: myricetin, I: naringenin.
In addition, antibiofilm activity in S. aureus by quercetin (Figure 8B), chrysin (Figure 8E), apigenin (Figure 8C), kaempferol (Figure 8F) and fisetin (Figure 8D) has been reported where the number of hydroxyls is directly related to the increase in the activity [97], whereas morin (Figure 8G), myricetin (Figure 8H), quercetin (Figure 8B) and kaempferol (Figure 8F), having a hydroxyl group at C-2´ and C-4´ in ring B, inhibit SrtA and SrtB sortases of S. aureus more effectively [98].
\nThe myricetin (Figure 8H) is a compound able to interact with listeriolysin O, a virulence factor of Listeria monocytogenes that is involved in the lysis of host cells. This interaction is related to the presence of the double bond in the molecule, specifically in the C1-C2 position in ring C [99]. This generates a complex that blocks the hemolytic activity of the listeriolysin as it prevents binding to cholesterol.
\nFurthermore, it has been shown that the naringenin (Figure 8I) have antibiofilm activity on V. harveyi and E. coli; however, this activity is compromised when sugar residues are incorporated [100]. In the case of V. harveyi, the naringenin also represses the expression of T3SS regulatory genes [100].
Resveratrol (RV) (Figure 9A) is a natural polyphenol and phytoalexin produced by plants in case of attacks by pathogens [101]. It is mainly found in the skin of grapes, some berries and red wine [102]. For its medical properties, it is recognized as a compound that provides multiple benefits to human health [103] and recent studies have demonstrated its anti-virulence potential.
Resveratrol and related compounds with anti-virulence properties. A: Resveratrol, B: oxyresveratrol, C: dicinnamyl, D:cis-stilbene, E:trans-stilbene, F: ε-viniferin, G: suffruticosol A, H: suffruticosol B, I: vitisin A, J: vitisin B, and K:trans-gnetin.
Since plants produce RV, this metabolite was identified as the active compound with inhibitory activity against biofilm formation in Propionibacterium acnes from extracts of plants used in traditional Chinese medicine [104]. Also in S. aureus, the evaluation of different commercial red wines showed a dose-dependent inhibition of biofilm formation, hemolytic activity and increase in the survival of Caenorhabditis elegans exposed to the bacteria [97]. One of the major constituents of these red wines was RV, and similarly, it inhibited hemolysis in S. aureus [97]. In Vibrio cholerae, the biofilm formation has a prominent role in pathogenesis and RV was found to be a potent biofilm inhibitor at subinhibitory concentrations and showed binding affinity with the virulence activator AphB [102]. Furthermore, in the uropathogenic bacteria, Proteus mirabilis RV inhibited swarming motility, hemolysin and urease activity as well as the virulence factor expression at dose-dependent manner [101].
\nCompounds related to RV, the oxyresveratrol (Figure 9B), dicinnamyl (Figure 9C), cis-stilbene (Figure 9D) and trans-stilbene (Figure 9E) also were evaluated against S. aureus virulence. Only, the cis-stilbene and trans-stilbene along with RV markedly inhibited the hemolytic activity by more than 80%, while dicinnamyl, oxyresveratrol and trans-stilbene have a significant biofilm inhibition effect [105]. The inhibitory activity of trans-stilbene was corroborated with the evidence that is able to repress the expression of the α-hemolysin gene (hla) and of genes implicated in adhesion (icaA and icaD) and with the attenuation of S. aureus virulence in the nematode C. elegans [105]. In enterohemorrhagic E. coli, the RV isolated from the extract of Carex dimorpholepis significantly reduced biofilm formation (up to 90%), expression of biofilm-related genes and swimming and swarming motilities, suggesting that this compound is a major antibiofilm component in this extract, corroborating its potential as therapeutic agent against E. coli [106].
\nThe RV and its oligomers, namely ε-viniferin (Figure 9F), suffruticosolA (Figure 9G), suffruticosol B (Figure 9H), vitisin A (Figure 9I) and vitisin B (Figure 9J) isolated from different plant families, also have antibiofilm activities against E. coli. The qRT-PCR analyses showed that ε-viniferin, suffruticosol B and vitisin B repress the expression of genes involved in curli and fimbriae production [105]. Also, RV and suffruticosol A, suffruticosol B, vitisin A and B inhibit biofilm formation in P. aeruginosa at dose-dependent manner [106].
\nThe oligomers ε-viniferin and trans-gnetin (Figure 9K) isolated from Paeonia lactiflora have inhibitory activity in neuraminidase activity, an enzyme involved in many pathological process in tropical human pathogens [107]. Furthermore, the ε-viniferin and RV isolated from Carex pumila extract also demonstrated significantly biofilm inhibition in P. aeruginosa and E. coli [108]. The anti-quorum sensing activity of RV also was demonstrated, in C. violaceum, since it reduces violacein production [57, 109]. In Yersinia enterolitica and Erwinia amylovora, it was one of the most active compounds that can reduce the concentration of the autoinducers due to degradation transformation or inhibition of synthesis [57].
Salicylic acid (SA) (Figure 10A) is a phenolic compound synthesized by plants that play an important role in the regulation of various physiological processes [110, 111], and in recent years, their inhibitory activity against bacterial virulence has been reported.
Salicylic acid and related compounds with anti-virulence properties. A: Salicylic acid, B: acetyl salicylic acid, C: salicylamide, D: methyl salicylate, E: benzoic acid, F: p-hydroxybenzoic acid, G: protocatechuic acid, H: vanillic acid, I: gallic acid.
Several studies have demonstrated that SA has inhibitory activity in the motility and production of extracellular virulence factors in the opportunistic pathogenic bacteria P. aeruginosa, and among those factors, pyocyanin was inhibited by approximately 80% by SA and decreased the elastase and exoprotease production [110]. Similarly, a subinhibitory concentration of SA inhibited the twitching and swimming motility as well as the invasion and acute cytotoxicity of P. aeruginosa in corneal epithelial cells [112]. Some derivatives of SA, including acetyl salicylic acid (Figure 10B), salicylamide (Figure 10C), methyl salicylate (Figure 10D) and a precursor of SA, benzoic acid (Figure 10E), were evaluated, and the inhibition levels observed were comparable with those obtained with SA for the same virulence factors [110]. SA is a benzoic acid that possesses an aromatic ring bearing a hydroxyl group, and probably, one of these components of the structure is responsible for its anti-virulence activity.
\nThe biofilm formation in P. aeruginosa was also inhibited by SA in vitro and in vivo decreasing the attachment and consequently the biofilm formation [36, 110]. Similarly, in other bacterial pathogenic species that form biofilms, SA has inhibitory activity; for example, in Streptococus mutans, the biofilm formation was highly decreased when the enzymes, glucosyl and fructosyl transferases, which synthetize extracellular polymeric substances, were inhibited by SA [113].
\nCompounds related to SA, the p-hydroxybenzoic acid (Figure 10F) and protocatechuic acid (Figure 10G) at growth subinhibitory concentrations have different modes of action on biofilm formation disruption in Staphylococcus species [114]. Also, for the bacteria Helicobacter pylori implicated in the development of peptic ulcer, duodenal ulcer and gastric cancer, which uses a urease enzyme for the basification of the stomach pH and hence the colonization of the gastric mucosa [115], the protocatechuic acid has an inhibitory effect of 40% in its urease activity [116]. Vanillic acid (4-hydroxy-3-methoxybenzaldehyde) (Figure 10H) also showed antibiofilm activity in Aeromonas hydrophila at all the concentrations used in the range of 0–0.250 mg/mL [117].
\nOther important hydroxy benzoic acid with a numerous reports of anti-virulence properties is gallic acid (GA) (Figure 10I), which shows inhibition in many virulence factors among bacteria. For example, in S. aureus, GA reduces the bacterial adhesion and biofilm formation as well as the production of α-hemolysin a virulence factor produced by the bacteria with hemolytic, cytotoxic, dermonecrotic and lethal properties [118] since its activity was inhibited in a dose-dependent manner by this compound [119]. Similarly, in P. aeruginosa, E. coli and Listeria monocytogenes, their biofilm formation was also inhibited by GA.
\nThe inhibitory activity showed by these compounds may be related to some of their structural features, since different reports mentioned that in the active phenolic compounds, the basic skeleton remains the same, the basic skeleton remains same, but the number and positions of the hydroxyl groups on the aromatic ring and the type of substituents provide different biological properties [120–122]. Also, SA, gallic acid and vanillic acid have QS inhibitory activity by two different mechanisms: first, by affecting the synthesis of AHLs [55, 57, 123] and second, by interfering with the binding of short-chain AHLs to their receptor, especially in the case of vanillic acid [117].
An important feature of the anti-virulence molecules is that they may be less prone to promote the emergence of resistance than conventional antibiotics. At the moment, phenolic compounds represent the largest number of natural products with anti-virulence-reported activity and whose main target has been the inhibition of QS and biofilms. However, it has also been found that they can directly inhibit some of virulence factors such as sortases, curli, type III secretion system (T3SS), fimbriaes and two-component regulatory systems. It should be noted that most of the phenolic compounds represent structures already known, several of which have been subject to different pharmacological studies and some are even part of the international pharmacopeia and are active ingredients of herbal medicines.
\nMoreover, although QS is considered the main regulator of bacterial virulence, this is still part of a complex network of interconnected components including several environmental regulation systems and QS-independent virulence factors. Also, the direct inhibition of virulence factors and regulators of QS and TCS represents interesting options for achieving the implementation of this strategy. Thus, the correct design of anti-virulence therapies is very important [124, 125], and a feasible option is the combination of drugs with different action targets. In the same way, some challenges to overcome involve the evaluation of anti-virulence compounds in most bacterial systems, the corroboration in vivo in animal infection models and finally the evaluation of possible side effects on the populations of commensal and symbiotic bacteria.
\nGiven the growing public health problem worldwide derived by the emergence of bacterial multiresistance to antibiotics, the development of suitable anti-virulence therapies is presented as a viable strategy to provide a solution to this problem; moreover, we are in the decisive years that will dictate the implementation of these kind of strategies, this is occurring in a period of resurgence of the interest in natural products activities in which phenolic compounds have a fundamental role.
This work was supported by grants from Scientific Development Projects for Solving National Problems/CONACyT Mexico no. 2015-01-402. N-MC research is supported by the CONACYT PhD Grant 376049 and M-PL by the CONACYT PhD Grant 302218. R-GC research is funded by SEP-CONACYT 152794 and by PAPIIT-UNAM IA201116. I-CJ research is supported by Fideicomiso-COLPOS 167304 and Cátedras-CONACyT program.
History of several bank failures evidences how the excessive risk taking can affect the whole economy as well as the global financial scenario. Since bank deals with different kinds of risks, the regulators strive to minimize this risk exposure through different regulations. The key regulations aiming to minimize the risk and bank failure is the capital adequacy regulation. The principle of the capital adequacy regulation is based on the fact that the minimum capital should be high enough to absorb the potential losses. While capital acts as a buffer for the bank, in the distressed period, the higher the buffer, the lower the risk of default. Therefore, the importance of maintenance of adequate level of capital is never overestimated. This chapter will present a brief history of capital adequacy regulation and the evolution of the regulation over time.
\nBank for International Settlement (BIS), the oldest international financial organization, was founded in 1930. Its members are central banks or the regulatory authorities of 60 countries. The committee aims to serve as a regulatory authority for monetary and financial stability and foster international cooperation.
\nWest Germany’s Herstatt Bank closed its operation on June 26, 1974, due to excessive foreign exchange risk that posed counterparty risk in international settlement with the banks in New York. Subsequently, at the end of 1974 due to this cross-jurisdiction implication, BIS formed “Committee on Banking Regulations and Supervisory Practices” also known as Basel Committee on Banking Supervision (BCBS) headquartered in Basel. Since the inception, the committee has established a series of banking standards to promote monetary and financial stability. Though at the beginning, the group’s members were the governor of Central banks of G10 countries, at present, it has 45 institutions from 28 jurisdictions.
\nBCBS provides assistance to the central banks through regular cooperation to improve the quality of supervision in the banking industry. The committee sets regulations for the central banks. In addition, it acts consistently to enhance the financial stability and level playing field to avoid competitiveness conflicts globally. The member countries implement its prudential regulations and report to the committee periodically. BCBS decisions are expected to be followed by the member countries toward sound practice and standard guidelines in the financial industry [1].
\nThe Committee’s members are Argentina, Australia, Belgium, Brazil, Canada, China, European Union, France, Germany, Hong Kong SAR, India, Indonesia, Italy, Japan, Korea, Luxembourg, Mexico, the Netherlands, Russia, Saudi Arabia, Singapore, South Africa, Spain, Sweden, Switzerland, Turkey, the United Kingdom, and the United States. BCBS performs as a forum for regular cooperation on banking standard, regulation, and supervision issues between the member countries. It provides comprehensive guidelines for managing bank capital to safeguard against operational and financial risk in an international standard. Toward this standardization in banking operation and supervision, the committee has published a number of landmark guidelines on capital adequacy known as Basel I, Basel II, and Basel III.
\nThis guideline advises holding a minimum amount of capital on the risk-weighted assets of the bank. This regulation is called the capital adequacy regulation (CAR) or minimum capital requirement (MCR).
\nBanks as public confidence institution are strictly guided by regulations and supervision by the regulatory authority. Since risk is an integral part of any financial institution, in the process of providing different services to the economy banks come across different types of risk in their operation. As a result, risk is the subject of all regulation bases [2]. Regulators and risk managers define risk as an uncertainty that has adverse effect on the positive outcome of the bank like banks return, asset, or goodwill. Hence, the regulations intend to enhance the resilience of the bank in the stressed situations to protect the interest of the depositors and other associated counterparts of the bank.
\nIn discussion of bank capital, the most widely used terms that come together are regulatory capital and economic capital. Regulatory capital as its name implies is the minimum level of capital required by the regulatory authority. Principally, the regulatory capital should be derived from the maximization of the social welfare function that takes into account the cost and benefit of the capital regulation [3]. Economic capital is the level of capital chosen by the shareholder of the bank. It relates with a desired rating required to safeguard the bank’s losses at a certain confidence level. So, if the bank’s loss during a period is higher than the initial level of capital, it will be in default. Therefore, the shareholder trades off between the costs of raise or increase of the equity against the benefit of reducing the banks probability of default. Mainly, cost of capital determines the relative position of the economic and regulatory capital. When the cost of capital is low, the economic capital is higher than the level of regulatory capital [3].
\nWhile discussing the economic capital and regulatory capital levels, the actual level of capital or actual capital arises. Actual capital is higher than the regulatory level chosen by the shareholder taking into consideration different regulatory requirements. Threat of closing the undercapitalized bank or avoidance of penalty insists the bank management and shareholders to keep the actual capital level above the minimum requirement.
\nIn this chapter, we will discuss the regulatory capital or the minimum capital requirement (MCR) of the bank.
\nIn 1998, when the world economy faced the economic recession, the Latin American countries could not sustain their debts due to higher interest rates of loans and shorten repayment period [1]. These sovereign defaults possess critical situation for the international banks by eroding the capital buffer and global financial stability. The concern for global financial stability encouraged the BCBS committee to set up an international standard for risk measurement. The committee released a capital measurement system referred to as the “Basel Capital Accord” in July 1988 [4]. The principal of this measurement was to weigh the on-balance sheet and off-balance sheet asset according to the risk they possess. The accord required banks to hold at least 8% of risk-weighted assets (RWA) as capital; 50% of which must be Tier 1 or core capital.
\nInitially Basel Accord I focused to the credit risk of the bank measured by the Cookie ratio. However, being criticized for exaggerating on the credit risk in 1996, an amendment was issued through incorporating the market risk to address banks’ exposure in foreign exchange risk, securities trade, equities, commodities, and options [4]. This amendment permitted the bank to use internal model to measure the market risk and associated capital against this risk.
\nThe first Basel Accord, i.e., Basel I was introduced among the member countries of G-10 which includes Belgium, Canada, France, Germany, Italy, Japan, the Netherlands, Sweden, Switzerland, the United Kingdom, and the United States. The accord was designed to implement among all of the internationally active banks across countries to make a level playing field, i.e., to avoid competitiveness conflicts globally. For large and complex institutions, the regulation becomes less significant. Finally, a more risk-sensitive and comprehensive capital structure guideline—Basel II—was developed.
\nAs a response to Enron scandal and innovation of financial derivatives after the execution of Basel Accord I, a new regulatory framework was imperative to introduce.
\nA more sensitive new capital requirement known as Basel II was initiated shortly in 2004 to accommodate the highly complex on- and off-balance sheet items, promote more risk sensitive capital requirement through banks own assessment, and provide greater transparency. The purpose of the Basel II accord was to address the risk areas that were not covered by Basel I, to measure the capital requirement above the minimum level.
\nThe Basel II accord released in 2004 was developed on three pillars, which are as follows:
Pillar I or minimum capital requirement (MCR)
Pillar II or supervisory review process (SRP)
Pillar III or market discipline (MD)
Pillar I or MCR states that banks are required to maintain regulatory capital that is 8% of risk-weighted assets (RWA). The RWA refer to the total assets of the bank that are risk-adjusted or weighted against credit risk, market risk, and operational risk according to the risk grade. Bank assets consist of cash, investment in securities, loans to governments, and businesses individuals that bear different risk characteristics. Therefore, risk weight is assigned to this asset group to indicate the level of riskiness in each asset group. To calculate the capital requirement, it takes into account both the on-balance sheet and off-balance sheet items of the bank.
\nEligible regulatory capital is constituent of core capital or Tier 1 capital and supplementary capital or Tier 2 capital. Pillar I states the maintenance of regulatory capital on these two types. Core capital is the equity capital of the bank, retained earnings, and other reserves. For supervisory purposes, the committee determined to present the capital of the bank in two groups Tier 1 and Tier 2 where Tier 1 or the core capital should not be less than 50% of the total capital base of the bank that consists of common equity and approved reserves from the retained earnings. Other elements of the capital will have to be grouped in Tier 2 that is limited to 100% of the core capital or Tier 1 capital. Tier 2 includes the following:
Undisclosed reserve or unpublished reserves
Revaluation reserve of certain assets
General provision/general loan-loss reserves
Hybrid debt capital instrument
Subordinated term debt
Short-term subordinated debt covering market risk or Tier 3 capital. Even though the eligible regulatory capital consists of core capital and supplementary capital, to cover the market risk, bank at its discretion can build Tier 3 capital that consists of short-term subordinated debt. This Tier 3 capital base can be built to support solely the market risk and cannot be higher than 250% of the core capital or Tier 1 capital.
\nThe items to be deducted from the capital base are goodwill (deduction from Tier 1 capital), increase in equity due to securitization exposure, and investment in subsidiaries performing in the banking and financial sector that is not included in the national system.
\nMinimum capital requirement (MCR) is calculated for credit risk, market risk, and operational risk. BCBS advises that the minimum capital requirement under Basel II must be 8%, which will be calculated as follows:
\nwhere CAR is the capital adequacy ratio, Tier 1 is the Tier 1 capital, Tier 2 is the Tier 2 capital, Tier 3 is the Tier 3 capital, Cr risk RWA is the risk-weighted asset for credit risk, Oper risk RWA is the risk-weighted asset for operational risk, and Mkt risk RWA is the risk-weighted asset for market risk.
\nThe following sections present a brief discussion on calculation of capital requirements for these risk areas, i.e., credit risk, operational risk, and market risk.
\nRisk-weighted asset for credit risk is calculated for credit RWA for exposure in banking book except the counterparty credit risk arising from equity investment, securitization exposure, and trading book instruments. Bank can choose either standardized approach (SA) or internal ratings-based approach (IRBA) to calculate their capital requirement against credit risk. In standard approach the risk is measured by the support of external rating or credit assessments whereas internal rating based approach is conducted by banks internal rating system and subject to the approval of the supervisors [5].
\nIn case of standardized approach, claims against different counterparties are risk weighted against their rating. This credit rating is assessed by external credit rating institutions. In case of absence of any credit rating, the banks are advised to follow the instruction by the regulatory authorities. National regulatory or supervisory authorities permit the eligibility of the external credit assessment institution upon fulfillment of certain conditions. The credit rating agency must fulfill six criteria: objectivity, independence, international access/transparency, disclosure, resource, and credibility.
\nBCBS advises risk weight for claims on sovereigns, non-central government public sector entities, multilateral development banks, banks, securities firms, corporates, included in the regulatory retail portfolios, secured by residential property, commercial real estate, past due loans, and off-balance sheet items. A higher credit score signifies lower risk weight in calculating the risk-weighted asset of the bank. In standardized approach, bank calculates the total risk-weighted asset of the bank taking into consideration the whole credit portfolio. Along with the regular claims, the unsecured loans that are past due for more than 90 days are also risk weighted. This unsecured portion of the loan is risk weighted after the net of specific provision.
\nIn standardized approach, the off-balance sheet items are converted into credit exposure equivalents through the use of credit conversion factors (CCF). The original maturity time determines the CCF of different commitments in the off-balance sheet items.
\nInternal ratings-based approach (IRB) as its name implies relies on own estimates of risk measurement in determining the capital requirement against credit risk, which are subject to fulfillment of certain conditions as well as disclosure requirements by the regulatory authorities. In IRB, the risk management team identifies the probability of default (PD), loss given default (LGD), the exposure at default (EAD), and effective maturity (M). Through these risk components, banks measure the unexpected loss (UL) and expected loss (EL). The capital requirements are calculated on the basis of unexpected loss. Expected losses are treated separately [5].
\nBCBS defines operational risk as “the risk of loss resulting from inadequate or failed internal processes, people, and systems or from external events.” It includes the legal risk and excludes strategic and reputational risk. The committee advises three measurement approaches to calculate the capital charge against the operational risk of the bank. The approaches are (i) the basic indicator approach (BIA), (ii) standardized approach (SA), and (iii) advanced measurement approach (AMA).
\nBanks are encouraged to follow the sequential order of the measurement approaches. The level of sophisticated risk measurement system and practice would decide to follow the later approaches, i.e., standardized approach and advanced measurement approach. Internationally active banks with significant risk exposure in the operational areas are permitted to follow the standardized or advanced measurement approach.
\nIn basic indicator approach, the capital charge for operational risk is equal to the 15% of average positive annual gross income of the bank. Gross income is the total of net interest income and net non-interest income. It does not include any realized profit or loss from the sale of securities and any income derived from insurance. The calculation of capital charge in basic indicator approach is as follows:
\nHere KBIA is the capital charge in basic indicator approach; GI is the gross income, which was positive, over the previous 3 years; n is the number of previous 3 years for which gross income is positive; and α is 15% required capital level against the operational risk.
\nIn standardized approach, a bank’s activities are divided into eight sectors: corporate finance, trading and sales, retail banking, commercial banking, payment and settlement, agency services, asset management, and retail brokerage. In standardized approach, for every sector separate gross income is calculated separately. To measure the capital charge, this sectoral gross income is multiplied by denoted beta (a factor). Beta is a proxy variable that denotes relationship between the operational risk (of loss) for the particular business sector and aggregate level of gross income for that business sector [5]. Unlike basic indicator approach, standardized approach measures capital charge for each business line separately.
\nIn SA, capital charge is calculated by taking the 3 years average of simple summation of the regulatory capital charge for each of the business sectors. Any negative capital charge due to negative gross income for any business sector may offset the positive capital charge in other business sector without limit. If the aggregate capital charge across all business lines in a certain time period is negative, then the numerator will be considered as zero. BCBS expressed the equation as follows:
\nwhere KSA is the capital charge under the standardized approach; GI1–8 is the annual gross income in a given year, for each of the eight business sectors; and β1–8 is a fixed percentage, set by the BCBS, the level of required capital to the level of the gross income for each of the eight business sectors.
\n\nTable 1 presents the value of β for each business sector as prescribed by BCBS [5] as follows.
\nSl. no. | \nBusiness sector | \nValue of β (%) | \n
---|---|---|
1 | \nCorporate finance | \n18 | \n
2 | \nTrading and sales | \n18 | \n
3 | \nRetail banking | \n12 | \n
4 | \nCommercial banking | \n15 | \n
5 | \nPayment and settlement | \n18 | \n
6 | \nAgency services | \n15 | \n
7 | \nAsset management | \n12 | \n
8 | \nRetail brokerage | \n12 | \n
Value of β for different business sectors.
In advanced measurement approach, banks use some qualitative and quantitative criteria to calculate the risk exposure and capital charge by their own. This approach requires complex modeling and is subject to the approval of the supervisory authority.
\nBCBC defines market risk as “the risk of losses in on- and off-balance sheet positions arising from movements in market prices.” Sources of market risk are interest rate risk, foreign exchange risk, and commodities risk [5]. Interest risk arises from the loss due to movement of interest rate. Foreign exchange risk arises from changes in banks’ assets and liability due to the fluctuation of foreign exchange rate. In the case of cross-border investments, when banks invest in different currencies risk arises due to adverse changes in the exchange rate. Similarly, commodity risk arises from the uncertain future market price changes in commodity prices.
\nMarket risk is measured using the standardized measurement method and value at risk (VaR) or internal model approach. The choice of method is subject to the permission of the regulatory authorities. In standardized measurement method, four risks are addressed which are interest rate, equity position, foreign exchange, and commodities risk. The practice of internal model approach is subject to compliance of certain conditions and approval of the supervisory authorities.
\nTherefore, bank’s total minimum capital requirement will be the summation of the capital requirement against the credit risk, capital charge for operational risk, and capital charge for market risk of the bank.
\nPillar II or supervisory review process intends to assure that the bank has sufficient capital to support different risks arising in the business operation as well as encourage developing and practicing better risk management technique. SRP concedes the bank management to set capital target through developing an Internal Capital Assessment Process (ICAAP) that commensurate with banks own risk profile [5]. It also ensures that the bank management bears the responsibility to maintain the adequate level of capital beyond the minimum level to support its risk. The committee identifies the appropriate relationship between the risk and amount of capital and the effectiveness of bank’s internal control and risk management process. The role of supervisory authority is to evaluate how the operating banks are assessing their risk and capital requirement and intervene if necessary. SRP intends to intervene the bank regulators to prevent capital shortfall from the minimum level in the early stage and to take rapid corrective action [5]. The SRP takes into account other risk factors that are not considered in Pillar I (i.e., liquidity risk and interest risk). The regulatory authority evaluates the bank’s assessment of capital, ability to monitor, and be compliant with the capital regulations.
\nPillar III promotes market discipline through a set of qualitative and quantitative disclosure requirements that allow the market participants to understand the scope of application, capital position, risk exposure, and assessment of the banks. It is complement to Pillars I and II. Therefore, the disclosure allows a bank to present its risk position that is based on a common and consistent framework to the regulatory authority as well as public for comparison and credibility.
\nBank supervisors having their power to disclose requirements to the operating banks contribute to safe and sound banking practices. Banks will have a formal disclosure policy approved by the board of directors, which exhibits the items to be disclosed, frequency, and internal control over the process. These capital and risk disclosure requirements do not conflict with and minimize the scope of the accounting requirements.
\nGlobal economy suffers severe financial distress during 2007–2008. Excess liquidity in the banking sector resulting in too much weak credit or loans to subprime borrowers is at the top of the list behind the crisis of 2007–2008. Other reasons that triggered the global crisis are excessive risk taken by the financial firms, excess leverage, lack of adequate quality capital, inadequate liquidity buffer, and excess dependence on the credit rating agency [6]. The crisis revealed the lapses in the regulatory framework, market transparency, and supervision quality [7]. The crisis of 2007–2008 exposed the shortcomings of Basel II in managing the systematic risk and revealed the moral hazard problem linked with the systematically important banks.
\nIn response to the crisis, BCBS addressing the weaknesses proposed revised capital framework that enforces raising higher quality of capital. It suggests building more common equity to improve loss absorption capacity and maintaining two liquidity standards and leverage ratio. The purpose of the regulation is to increase the level and quality of capital, enhance risk capture, constrain bank leverage, improve bank liquidity, and limit pro-cyclicality. In 2017, the committee reforms Basel III 2010 that seeks the credibility in risk calculation and improvement in comparison on the capital position of the bank [8].
\nThe minimum amount of common equity to be maintained is increased from 2 to 4.5% and capital conservation buffer of 2.5% of the risk-weighted assets of the bank. In addition, the regulatory authority can enforce additional capital buffer during the period of excess credit growth. For systemically important banks, additional loss absorbency capacity can be introduced [7]. In 2017 reform, the committee has brought some changes in calculating credit risk through detailed risk weighing rather than flat risk weight for loans against residential and commercial real estate. In addition, banks are advised to perform due diligence in case of relying on external credit ratings.
\nTo make the banking industry more stable, building capital alone is not sufficient. Therefore, to protect against buildup of excessive balance sheet leverage, Basel III introduced non-risk-based leverage ratio. This non-risk-based leverage ratio is Tier 1 capital to average total restated balance sheet assets over the quarter. The leverage ratio should be minimum 3%.
\nMoreover, for better resilience, (a) liquidity coverage ratio (LCR) for short-term disruption and (b) net stable funding ratio (NSFR) for long-term liquidity mismatch in the balance sheet are introduced. LCR is a standard for a minimum level of liquidity where the institution can generate enough cash outflow from the high-quality liquid assets in any short-term distress situation. The LCR standard is measured by the ratio of stock of high liquid assets to total net cash outflows over the next 30 calendar days. However, NSFR measures the sustainable funding ratio relating to the assets and off-balance sheet activities [9]. NSFR is the ratio of the available amount of stable funding to the required amount of stable funding, which should be greater than 100%. It suggests the banks to rely on long-term liabilities over short-term liabilities and small and retail liabilities over wholesome liabilities in case of short-term maturity (less than 1 year) for better resilience.
\nThe crisis also revealed that the existing regulation has not appropriately covered major on- and off-balance sheet items, trading book, and derivative-related risk exposure. BCBS advises a revised framework to address the trading book exposure under Basel III that increases the capital charges around three to four times of previous level. Basel III upholds the counterparty credit risk management and collateral risk management and addresses the pro-cyclicality effect and credit valuation adjustment risk to reduce the reliance on external credit rating agencies. Table 2 presents the present capital ratio and liquidity ratio advised by the committee [10].
\nParticulars | \nMinimum % of RWA | \n
---|---|
Common equity | \n4.5 | \n
Capital conservation buffer | \n2.5 | \n
Tier 1 capital | \n6 | \n
Total capital | \n8 | \n
Liquidity coverage ratio | \n≥100 | \n
Net stable funding ratio | \n≥100 | \n
Minimum capital requirement ratio.
The case of Lehman Brothers and AIG call attention to how a single firm can boost up shock in the financial market as well as in the global economy. The financial crisis of 2007–2008 has revealed that microprudential guideline alone is not sufficient to address the systematic risk. Macroprudential regulation that takes into account the risk arising from interconnectedness of the financial institutions is important to respond to the systematic risk and financial stability in the economy.
\nTherefore, the macroprudential guidelines impose additional capital requirement for systematically important banks to reduce their default probability. BCBS advises building common equity of 2.5% of risk-weighted asset as capital conservation buffer so that in times of distress, this buffer can be scaled down to absorb losses. BCBS also advises the regulatory authorities to raise an additional countercyclical capital buffer of 2.5% to respond with excessive credit growth that may induce systematic risk in the financial sector. Banks incur a huge loss during downturn followed by a long excessive aggregate credit growth. After the asset price bubbles loans go unpaid, prices go down, banks loan decrease, and level of defaults even increases more [11]. To prevent this systematic risk, banks are advised to build additional capital up to 2.5% during the credit growth time that ensures the sufficient level of capital during the distress periods. It ensures that during the downturn, the banking institution has enough cushions to absorb the additional loss and provisioning. It also intends to support the financial stability by building countercyclical capital buffer during boom period through increasing to the cost of credit which reduces the demand for it [12].
\nBCBS provides capital standard for conventional banks but Islamic banks are also under the same jurisdiction toward a safe and sound banking system. Islamic banks differ from the conventional banks in their operation due to unique items in the liability side of the balance sheet, risk sharing with the depositor and investor, absence of interest, and so on. Moreover, Islamic banks cannot access some credit derivatives to mitigate risk like conventional banks because of governing by the Shariah Principle. Wide range of financing mode also poses Islamic banking to face different kinds of risk. Since the operation of Islamic banking differs from the conventional banking, the determination of capital requirements also differs [13]. Studies find BCBS capital regulation does not address the risk of Islamic bank and lacks the goal to minimize the level of risk faced by the Islamic banks. Furthermore, it contributes to increase the risk of Islamic banks [14].
\nThe Islamic Financial Services Board (IFSB) is an international organization that provides prudential guidelines and standards for the Islamic banks, insurance (takaful), and capital markets to enhance the stability of the Islamic financial industry. IFSB provides the standards aligning with the global regulatory standards in calculating capital requirements, thereby making disclosure toward transparency and market discipline [12]. However, because of asset-based financing, profit-loss sharing, profit bearing, or loss sharing principle, the capital determination is different from the conventional banking institution. Like the BCBS, IFSB also advises countercyclical capital buffer to the Islamic banks to reduce the systematic risk during the period of excessive credit growth.
\nThe relationship between bank capital level and risk management is the most studied issue after the capital regulation regime. The empirical evidence provides useful insights about the factors affecting the risk undertaking of the banks. However, the studies focusing on the relationship between capital, risk management, and performance found contrasting results. Several studies found, in effect, that capital regulation stimulates the banks to take excessive risk through allowing the banks to increase riskier investment with the increase of bank capital [6]. Regulatory restriction, lower rate of return, riskier portfolio, and deposit insurance are the major causes identified behind the positive association between risk and capital regulations [15, 16]. Building capital raises cost of capital, decreases expected profit and rate of return, and induces the bank to invest in riskier sector that is more riskier in the long run [16]. Conversely, strict regulation, income diversity, and bank size are the factors identified behind the negative relationship between capital regulation and bank risk [17, 18, 19, 20]. However, studies also find that capital regulation has different impact on conventional and Islamic banks.
\nBank regulations and supervisions are to make the financial system more resilient that facilitate the stakeholders, creditors, depositors, and different counterparties. It prevents banks to take excessive risk. Therefore, to increase the financial stability around the world, BCBS a committee of BIS provides prudential guidelines for the banks and other financial institutions. The committee has advised three capital accords: Basel I, Basel II, and Basel III. Basel III is addressed to mitigate the regulatory lapses and systematic risk faced by the banks during recent financial crisis of 2007–2008.
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