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Basel III: The market is ready; the BCBS is still thinking

Following my last post in relation to the G20 summit in Seoul, I wanted to share some further thoughts, as it is clear that because of the diverse economic and regulatory environments in the G20, there is no “one size fits all” guideline for institutions trying to comply with Basel III. 

It is clear that many of the G20 countries will not wait for more certainty around Basel III and will push forward independently with specific requirements. The underlying assumption is that regulators are not waiting for the starting gun to put pressure on the systemic key players, as evidenced by the Swiss example, the Internal Liquidity Adequacy Assessment (ILAA) in the UK, and the Dodd-Frank regulation in the US. 

Even if Basel III remains unclear in some areas and requires further work from the regulators, banks will not use the “wait and see” approach as commonly used for implementing Basel II. Instead they are adopting a proactive approach for complying efficiently with the new regulatory requirements, despite the seemingly long period until the final implementation deadline.

Today, there are three main areas where banks are improving their risk management issues: improving the quality of their enterprise-wide data, enhancing their risk management policies, and embedding an appropriate awareness of risk culture throughout their organisation. Improving these processes is likely to result in a stronger foundation and more financial transparency, ensuring banks can successfully enter the Basel III era.

 

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