Introduction

The financial crisis resulted from numerous factors, such as excessive bonuses for hazardous risk taking and an explosion of exotic product development labelled by the Lord Turner, the FSA Chairman, as absurd and socially useless. Exacerbating the situation, however, was regulation that was too weak to identify and address the dangers of excessive leverage. Following many months of negotiations, global banking regulators, in September 2010, sought finalise reforms to increase the size of capital reserves and liquidity buffers that banks must hold against losses.

Key findings

• Capital requirements – It is interesting to note that not a single respondent believed that Basel III proposals are an over the top reaction from regulators. This can be expected, however, as concessions have been made. The general perception in the immediate wake of these reforms is that the proposals were weaker than initially expected.

• Liquidity – Responses show that the majority of participants believe that the Basel III proposals will not be too demanding in terms of the liquidity that banks will be required to hold. There is some concern, however, as to how this may impact the economy.

• Timeframes – Whilst it is believed the industry will consider the nine year transition period acceptable, those commentators who see the longevity of the process as unnecessary are concerned that delays may not prevent the next crisis from occurring before 2019.

• Challenges and Concerns – A number of respondents mentioned a number of challenges, which highlights the wide reaching extent of the Basel III proposals. Nevertheless, a number of banks mentioned that ensuring that models and processes are correct, and that users have a full understanding of changes, will be one of the initial challenges.

Conclusion

As can be seen from the results, the industry is in agreement that the increase in capital is a necessary change that seems to be more welcome than other measures. The majority of respondents also concur that the timelines set forth to comply with capital requirements are adequate, with many even expecting banks to comply with time to spare. Banks from nations such as Switzerland, which face tougher measures from national supervisors, would be expected to prefer less stringent measures.

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