Does Basel III Go Far Enough? Maybe Not Says Analyst At Earle, Carlton & Hughes

Sept. 15, 2010 - PRLog -- On Sunday, 12 September, the world’s top bank regulators agreed on far-reaching new rules intended to make the global banking industry safer and protect international economies from future financial disasters.

The centerpiece of the agreement is a measure that requires banks to raise the amount of common equity they hold — considered the least risky form of capital — to 7 percent of assets from 2 percent. Together with other requirements intended to safeguard against risk, it could significantly alter the way banks do business.

The recommendations by the group, which includes Ben S. Bernanke, chairman of the Federal Reserve, are subject to approval in November by the G-20 nations and then enactment by individual nations before they become binding. The group set a deadline of Jan. 1, 2013, for member nations to begin to phase in the rules, known as Basel III.

“The agreements reached today are a fundamental strengthening of global capital standards,” said Thomas Frominger, an analyst from Earle, Carlton and Hughes .  “It will prove to be a significant contribution to long-term financial stability and growth will be substantial.”

The regulations have been criticized from both sides with many banking groups claiming that their growth will be stymied and consumer advocates openly stating that the regulations do not go far enough. The middle ground that the commission sought to find would allow banks to still work in a profitable manner while heading off the potential meltdowns that brought the world’s largest economies to their knees.

“It will make some banks less profitable,” said Mr. Frominger from ECH. “But it will make the system safer, because there will be more of a cushion from insolvency, so banks can withstand more of a hit and still walk away alive.” Banks that are looking for the quick, high-risk road will complain, but the firms that look for sustainable growth for their clients will welcome the new regulations.

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