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  5. Basel III: Hearing the Rumbles of the Next Regulatory Tsunami

Basel III: Hearing the Rumbles of the Next Regulatory Tsunami

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13 September 2010
Cubillas Ding

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.

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