Regulators say Basel III could go further

Regulators in the UK and in Switzerland have decided to exceed the measures concluded under Basel III, the Vickers ring fence and the ‘Swiss Finish’ according to reports.

The participants in the discussion made it clear that banks are not opposed to reform. They support measures to strengthen the resilience of the financial system, but call for their adequate application. Reforms that unduly affect credit supply are not without consequences, for banks, existing and potential investors, the underlying economy and, arguably, society. The discussion concluded that reforms should take account of the impact on the real economy and be calibrated, timed and sequenced so as not to extinguish the fragile economic recovery.

Angela Knight, Chief Executive of the British Bankers’ Association, says that the industry is supportive and engaged with the regulatory reform programme and the focus on strengthening of capital and liquidity requirements: “A robust regulatory framework that gives financial stability and market confidence is important for economies and for our customers and plays an essential part in the long process of restoring trust,” she says.

“But growth does not automatically follow from stability and some of the new rules can easily have the effect of restraining economic recovery. For example there has been considerable focus on the need for some banks to raise much more capital, but as the European Banking Authority and others have pointed out, the liquidity requirements are even larger. The combination has the potential both to increase the cost of borrowing for businesses and individuals and as banks’ business models adapt to the new regulatory environment, constrain the supply of credit, especially on the upturn.”