The Basel III Banking Regulation

Robert Fiedler

During their meeting in Seoul in November 2010 the Group of Twenty (G20) countries approved new rules for banking regulation, known as Basel III. In reaction to the financial crisis, the Basel Committee on Banking Supervision (BCBS) first discussed elements of Basel III in 2009 in order to strengthen the resiliency of the global financial industry. In December 2010 it issued a global regulatory framework for more resilient banks and banking systems (Basel III). While Basel II focused more on setting incentives for banks to adopt best practices, Basel III details measures to improve overall resilience on four fronts:

• • increasing the quantity and quality of capital required;

• • tightening the rules affecting risk-weighted assets (RWAs);

• • introducing short-term liquidity and long-term funding requirements;

• • applying further qualitative rules.

These capital and liquidity requirements can be expected to significantly lower bank’s returns on equity. Many bankers realise this, of course, and are already studying how the rules will affect various lines of business as they consider their strategic options.

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