Since the high point of the global financial crisis, there has been a call for reform to the systems of international finance. THe response to these calls from the international community has found focus with the Basel Committee on Banking Supervision (BCBS) which has now released what is known as Basel III.
This consultative document presents the Basel Committee’s proposals to strengthen global capital and liquidity regulations with the goal of promoting a more resilient banking sector. The objective of the Basel Committee’s reform package is to improve the banking sector’s ability to absorb shocks arising from financial and economic stress, whatever the source, thus reducing the risk of spillover from the financial sector to the real economy.
The counsel then released two public consultation documents:
1. Strengthening the resilience of the banking sector
2. International framework for liquidity risk measurement, standards and monitoring
The proposed changes have now been set into a final report and the council has issued its proposed changes known as Basel III:
1. The quality, consistency, and transparency of the capital base will be raised.
2. The risk coverage of the capital framework will be strengthened.
3. The Committee will introduce a leverage ratio as a supplementary measure to the Basel II risk-based framework.
4. The Committee is introducing a series of measures to promote the build up of capital buffers in good times that can be drawn upon in periods of stress (“Reducing procyclicality and promoting countercyclical buffers”).
5. The Committee is introducing a global minimum liquidity standard for internationally active banks that includes a 30-day liquidity coverage ratio requirement underpinned by a longer-term structural liquidity ratio.
A brief chronology of the accords is outlined below:
April 16, 2010 Actual End of the public comment period
April 23, 2010 Actual Meeting of G-20 Finance Ministers and Central Bank Governors, 23 April 2010
June 3-5, 2010 Actual Meeting of Finance Ministers and Central Bank Governors. Busan, Korea
June 26—27, 2010 Actual G-20 Toronto Summit
12 September, 2010 Actual Basel Committee set a minimum common equity level of 7%, plus a further counter-cyclical buffer containing up to 2.5% of risk-weighted assets.[11]
November 11-12, 2010 Planned G-20 Seoul Summit
December 31, 2010 Planned Fully calibrated set of standards will be developed
December 31, 2011 Planned All major G-20 financial centers commit to have adopted the Basel III Capital Framework by 2011
December 31, 2012 Tentative Target for implementation of Basel III
If you have a question about what the Basel III might mean for you please do not hestitate to contact us.
