Basel III: Hearing the Rumbles of the Next Regulatory Tsunami

by Cubillas Ding, September 14, 2010
Industry Trends
Global, Asia-Pacific, EMEA, Latin America, North America

Abstract

As Basel III proposals are being deliberated and more details come to the forefront, Celent urges financial institutions to take early preparatory actions that are not only consistent with the new proposals but also represent best practice risk management.

Post-crisis financial reforms continue to be characterized by the issuance and implementation of numerous complex regulations, with more changes expected as a result of ongoing regulatory deliberations. What the industry terms Basel III stems from the resolve by the Basel Committee to address the gaps exposed by the credit crisis and to safeguard financial stability. A complex and formidable array of banking reforms are emerging, with Basel III being only one piece of the jigsaw, albeit a highly significant piece.

In this report, Basel III: Hearing the Rumbles of the Next Regulatory Tsunami, Celent assesses the initial business, operations, and technology impact of Basel III proposals in light of ongoing deliberations. This research serves to enable both financial firms and service providers to respond to and navigate the changes ahead.

Broadly, the Basel proposals, in their current form, could dramatically raise the costs of extension of credit to businesses and consumers via the increased capital requirements. The liquidity requirements will place greater emphasis on term funding for wholesale-oriented institutions. Beyond that, greater capital costs for the use of OTC derivatives may limit flexibility in prudential risk management.

"As with Basel I and II, Basel III’s new rules will again change the dynamics of the banking game in the next decade,” says Cubillas Ding, Research Director at Celent and author of the report.

"Arguably, these are early days, but lessons should be learned from the past wave of regulations—where, due to delayed responses and the pressures to deliver to aggressive deadlines, a financial institution’s broader strategic objectives and Basel II ambitions left a lot to be desired in terms of realising business benefits and raising the bar on risk management practices. The speed and success of execution efforts usually begin with early preparation,” he adds.

Celent is a research and advisory firm dedicated to helping financial institutions formulate comprehensive business and technology strategies. Celent publishes reports identifying trends and best practices in financial services technology and conducts consulting engagements for financial institutions looking to use technology to enhance existing business processes or launch new business strategies. With a team of internationally based analysts, Celent is uniquely positioned to offer strategic advice and market insights on a global basis. Celent is a member of the Oliver Wyman Group, which is a wholly-owned subsidiary of Marsh & McLennan Companies [NYSE: MMC].

Media Contacts

North America
Michele Pace
mpace@celent.com
Tel: +1 212 345 1366

Europe (London)
Chris Williams
cwilliams@celent.com
Tel: +44 (0)782 448 3336

Asia (Tokyo)
Yumi Nagaoka
ynagaoka@celent.com
Tel.: +81 3 3500 3023

Table of Contents

Executive Summary

3

Basel III Proposals

4

Assessing the Implications

7

 

Implications for the Business

7

 

Implications for Operations and IT

10

Looking Forward: Steps in Preparing for the Next Wave

14

 

Final Remarks

15

Leveraging Celent’s Expertise

16

 

Support for Financial Institutions

16

 

Support for Vendors

16

Related Celent Research

17

Sign in to download reports and access personalized information