With the benefit of hindsight, global regulation failed to cope with the stresses of the 2008/2009 credit crunch. To correct this weakness, Basel III and its subsequent iterations have ensured that the two areas of greatest bank weakness; loss-absorbing capital and liquidity and risk management are as robust and effective as they need to be to survive a repeat. This, however, comes at a price. If banks are required to hold much more liquidity than they used to, this must be at the expense of earnings. Ditto more loss-absorbing capital and lending.
Basel III has given regulators “superpowers” and they are using them with the full support of an electorate which probably feels we don’t completely trust the banks to self-regulate”. As of now, there has probably never been a time in recent history when banks have been so closely micro-managed. Will this make them safer? Will it make them less profitable?
The recent and unexpected collapse of Silicon Valley Bank and the even more consequential collapse and rescue of Credit Suisse (a “too big to fail” GSIB) came as an unwelcome reminder that regulation is not fool-proof as new risks and operating environments develop. These collapses will no doubt prompt more changes but at this stage, it is not clear what shape they will take. Watch this space.
Basel III is being adopted almost universally as a benchmark of excellence and is probably a prerequisite for doing business with global banking partners. This is critical for those nations seeking or needing to attract inward capital investment. Without global partners, it is very challenging to raise the funds required domestically or to enjoy access to Trade Finance and international wealth management
We are told there will be no Basel IV (but this could change post Credit Suisse) and there are still plenty of enhancements to Basel III in the pipeline that will probably continue to constrain the ability of banks to take greater risks.
Our Basel training is designed to explain to delegates in practical terms, the impact of Basel III and CRD IV. It demonstrates how it adds value to an organisation despite its flaws and it explains the key challenges posed by its implementation.