Preparing for Basel III: The end of national banking rules?

Aug. 10, 2011 - PRLog -- With the imminent publication of a draft measure to put into European law a global accord on tougher capital and liquidity standards known as Basel III, banks across the world are preparing for a massive shake-up. Financial institutions face demands from the European Union (EU) to more than triple the minimum levels of core capital they must hold to protect against insolvency, though many believe the new law will hamper Europe's economic recovery. The proposal comes from the EU's financial services chief Michel Barnier and seeks to implement rules approved by the Basel Committee on Banking Supervision that aim to make banks more resilient to sudden market change. In order to comply with the EU's version of the Basel III rules, it is thought that lenders will need to raise approximately €423 billion (£370 billion) over the next four years. The details of Barnier's proposal are unlikely to shock the industry, however, as he is obliged to follow the precedent of Basel, backed by world leaders in 2010, or else face a backlash from the US.

Of most concern to banks in the EU is the extent to which the new rules will curb local regulatory sovereignty in member states such as the UK. Ahead of July's announcement, Giles Williams of consultancy KPMG told Reuters that a number of issues were likely to emerge. "The major sticking point will most likely be around maximum harmonisation and whether the proposed system will give national regulators sufficient flexibility and discretion to set capital requirements to reflect risks taken by individual banks, and financial stability concerns as and when they arise," he said.

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