Financial Regulatory Forum

ANALYSIS-Implementation key to Basel III success

By Huw Jones

LONDON, Sept 12 (Reuters) – The global “Basel III” deal on bank capital standards was reached at lightning speed by usually glacial regulators — substantive negotiations took about a year, compared to a decade for the current Basel II rules.

But implementing the new standards consistently over the lengthy phase-in period will be a headache for national regulators, and determine whether Basel III succeeds better than its predecessor in reducing bank sector risk.

* The Basel III rules are much tougher than Basel II, which failed to ensure banks held enough capital to withstand the worst financial crisis since the Great Depression.

* Although Basel III more than triples the amount of top-quality capital that banks will have to hold in reserve, there are several potential pitfalls in timing and content that could undermine the reform’s effectiveness.

* The key aspects of the completed package will not all be phased in until the start of 2019, presenting a challenge for supervisors and their political masters to maintain momentum in their supervision of the sector. Lobbying by banks or an eventual return to boom times could blunt the will to enforce Basel III, as memories of the global credit crisis fade.

ANALYSIS – Shadow banks hold key to post-Basel bank profits

By Kevin Drawbaugh

WASHINGTON, Jan 26 (Reuters) – Bank profits are set to come under serious pressure at the end of 2012 from higher global capital and liquidity standards, but just how bad it gets depends greatly on the future of the “shadow banking system”.

U.S. banking sector analysts are increasingly focused on the interplay between the setting of global capital standards and parallel efforts to bring non-bank financial institutions to heel and moderate their resurgence in credit markets.

The ability of regulators to bring “shadow banks” — investment firms, hedge funds, insurers, special investment vehicles — under a new oversight regime will help determine the pricing power banks have to raise rates on future loans.

BoE’s King calls for radical reform of banks

By Tim Castle

LONDON, Jan 26 (Reuters) – Radical reform is needed to make the banking system safer, Britain’s top central banker said on Tuesday, adding U.S. President Barack Obama’s plan to curb some activities would not fully solve the “too big to fail” problem.

Bank of England Governor Mervyn King said there was no “silver bullet” to solve the banking sector’s problems, and tinkering with regulation alone, such as bumping up capital and liquidity requirements, would not be enough when “stuff happens”.

Radical reforms were also needed to change the liability structure of the banking system, so creditors can’t simply walk away unscathed when a bank fails, King said.

  •