Michael Shashoua: Basel III’s Fault Lines

The Basel Committee on Banking Supervision’s disclosure that not all jurisdictions will be ready by January to implement Basel III rules or the Capital Requirements Directive (CRD) IV that frames these rules is not much of a surprise. While Stefan Ingves, chairman of the Basel Committee, says that “it is clear that not all jurisdictions will be ready in time,” he still points to progress on adoption. “It is essential that all jurisdictions continue to press ahead and finalize regulations by the deadline or as soon as possible thereafter,” he says. The question now is whether the Committee can make the right kind of revisions to the Basel III rules to make it acceptable in enough European countries or worldwide and still retain the necessary teeth to make the rules effective.

The global will to impose stricter capital adequacy requirements is weak, considering the raft of other economic problems, says Ed Ventura, president of consultancy Ventura Management Associates. There’s the Eurozone crisis, slowing global growth, high unemployment, and the US presidential election, which freezes further regulatory action in the US. “The legislative priorities of the jurisdictions that will be impacted by Basel III are more consumed with resolving some of those issues than with generating rules to enable Basel III,” says Ventura.

Economic Boost
Delaying Basel III could even boost the global economy by holding off additional restrictions to capital flows, notes Ventura. “Increased capital requirements will further restrict lending to small business and to individuals which will further slow growth,” he says.

Since Basel II took many years to gain acceptance, it wouldn’t be surprising if Basel III took an equal amount of time.