Risk Europe: Tweaks to Basel III will raise deadline pressure for banks

Changes to the detail of Basel III will make timely implementation a challenge, say attendees at Risk Europe

Banks will have little time to implement Basel III once the final calibrations are made to the framework over the coming year, warned participants at the Risk Europe pre-conference seminar in Brussels yesterday.

The Basel Committee on Banking Supervision published the complete version of the Basel III capital and liquidity framework on December 16 last year, but several issues still need to be resolved, including the treatment of systemically important financial institutions and final calibration for a capital charge on bank exposures to central counterparty (CCP) default funds.

Meanwhile, two new liquidity measures - the liquidity coverage ratio and net stable funding ratio - are subject to lengthy observation periods prior to full implementation, and the Basel Committee has acknowledged that changes will probably be made. A review of the trading book rules - including the new capital charge for credit valuation adjustment (CVA) - will also be conducted this year.

But bankers argued every tweak to the calibration will eat into the time available for implementation, which could be a particular issue for new requirements like the liquidity ratios. "Regulators should not under-estimate how much additional detail is needed for the liquidity requirements, as well as the rules for CVA and CCPs," said one member of the audience.

Local regulators also still need to transpose the requirements into national law. Mario Nava, head of the banking and financial conglomerates unit at the European Commission, who is leading the team responsible for drafting the fourth version of the capital requirements directive, says a proposed text should be published by the end of the third quarter of this year. This then needs to be debated by the European Parliament and Council of the European Union - a process expected to take about a year. "It's a massive amount of work, but I am confident we will deliver," said Nava.

However, bankers point out that would only leave them with a few months before the scheduled implementation of much of the framework from January 2013 - although the liquidity rules and a new leverage ratio will be introduced at a later date.

"I'm concerned about the implementation time left to banks if it is due for implementation on January 2013. You cannot second guess any changes that may be made," said Russell Deyell, head of group capital management at Lloyds Banking Group.